Today’s Economic Model

The internet business model is as capitalist as it gets, with a severe prejudice for growth over anything else, be it in user numbers, usage statistics, or profits. This is demonstrated in companies like Facebook or Apple being measured by their growth in usage and ad revenues. In The Nature and Logic of Capitalism, Robert L. Heilbroner points out how central to capitalism is “the use of wealth in various concrete forms, not as an end in itself, but as a means for gathering more wealth.” As the internet companies follow this constant drive for more and to be bigger, they dominate: Big Tech has become the oligarchical ruling class of the internet ecosystem. Heilbroner describes how this affects dynamics of the members within this ecosystem:

The analysis of capital as an expansive process is an important step in escaping from the fetishism of capital as objects, such as machines, or as a sum of money. It leads us to see capital as a web of social activities that permit the continuous metamorphosis of M-C-M' to take place.[1] At the center of this process is a social relationship between the owners of money and goods, the momentary embodiments of capital, and the users of these embodiments, who need them to carry on the activity of production on which their own livelihoods depend. The legal crux of this relationship lies in the right of exclusion: a central, although often ignored, meaning of “property” is that its owners can legally refuse to allow their possessions to be used by others. The critical aspect of money or capital goods as private property does not lie in the right of owners to use them in any way they wish, for such a dangerous social right has never existed, but to withhold them from use if their owners see fit. It is this right that enables the capitalist to dominate the sphere of trade and production in which his authority extends, as other legal rights enable military officers or priests or political figures to dominate the spheres in which their authority extends.

[1]: M-C-M’ is a notational term defined by Marx in Das Kapital*, referring to the application of money towards obtaining more money: Money to Commodities to Money*

In short, Big Tech owns the capital of the internet, and therefore has dominant powers over use: look to the opaque algorithms that dictate what is shown in user feeds, the inconsistent process of moderation of content, the rug pulls of monetization for content creators. To use Marx’s nomenclature, we can consider this G-C-G’: growth (in usage and/or profits) to control (in the form of network effects and user lock-in) to more growth. Blockchain technology, particularly cryptocurrencies and decentralized finance, claim to offer an alternative that empowers individuals and takes away that control.

The Web3 Alternative

The promises of web3 are often pointed directly at this imbalance of power from centralized internet companies. Chris Burniske notes in Protocols As Minimally Extractive Coordinators that web3 aim to provide infrastructure that “should be minimally extractive, whereas businesses are incentivized to be maximally extractive (that’s profit, and a business is valued as a multiple of its profit).” Setting aside for now the misaligned comparison of internet businesses with web3 protocols (more on that in a later essay), Burniske makes the point often heralded by web3 supporters: Big Tech is mainly concerned with profiting off users, while blockchain enables distributed rewards in various forms to all participants. Burniske ends his essay by noting the dynamic shifts this could provide to the internet, in the opposing direction of Heilbroner’s capitalism:

Any unnecessary extraction from the process of exchange is a tax that will ultimately be weeded out by copy-paste competition in the world of open-source protocols. While this presents a brave new world for businesses, minimizing extraction should accrue to the benefit of all of us as consumers.

So, we now have a model that redistributes capital—and by extension control—away from centralized entities (Big Tech), towards networks of individuals, currently taking shape as DAOs. But here we hit a logical inconsistency: how can we build and maintain an economy that is, for lack of a better term, anti-capitalist, within the bounds of capitalism? Put another way, if web3 promises to break the cycle of G-C-G’, businesses and participants in web3 must have incentives towards something else. They can’t continue to aim for growth and control (in this case via incentives, rather than ownership) in the same way and promise new outcomes and dynamics. A possible alternative is the Blockchain Web’s strategy of profit, which has at its center stability and utility.

With stability and utility, rather than growth and control, we have a vision for financial outcomes that shifts priorities from more money to stable money; from extracting financial value from users to providing utility value to users. This balances the two ends of the spectrum that are Big Tech and Web3, much like was discussed in the first part of Blockchain Web. For businesses, profit growth isn’t the North Star like for tech corporations, rather stable profits. And users needn’t expect profits for their participation like in tokenomics-based protocols, rather they get an experience and utility that improves their lives.

Realigning Incentives: Royalty-Integrated Equity

The stock market and various forms of equity investment have offered for centuries a way for capitalists to gain more capital and the powerful to get more power. This is a major contributor to financial inequality. Based off the ideals of web3 that are in opposition to corporate tech, it feels like a perfect target to redistribute wealth and empower individuals. Royalty-integrated equity (RIE) is a form of equity that the blockchain enables which addresses both shifting business incentives away from pure profits and growth, and also can create a more accessible form of capital ownership.

Simply put, RIE is a fungible token that integrates royalty payments on transfer. In other words, RIE creates shares of stock in companies that can pay small royalty fees back to their respective companies when they are traded. How does this work? Currently, there is a standard for NFTs to be built with royalties: a function in their smart contracts that pay back small percentages to the original creators. This could be implemented in cryptocurrency tokens, taking the royalty from the payment for transferring the tokens. So when a token is traded on an exchange, a small fee is paid back to the token issuer (and likely the exchange). With RIE, buying shares in a company would mean not just investing in that company’s stock, but sending money directly to them in the process.

Imagine a typical IPO or token launch. The shares/tokens are open for trading, and various market mechanisms determine their prices, which directly impacts the valuation of the company itself. Investors now demand returns, which always means growth: for the share/token price to increase, the value of the business operations must have demonstrably increased. A RIE launch would be similar, with a massive addition: immediately the issuing business now gets revenue off any trade of their tokens, regardless of price!

This forms the basis of capital stability, lifting the load of the overbearing need for capital growth. If a business is able to raise money by entering the public markets with RIE, they reach a point of stability: income from their equity being traded offers a steady revenue stream. That revenue can be used to reinvest in the business in ways that are often overlooked; ways that do not figure into the bottom line but rather provide value for customers. It can be used to fund public goods, make the product cheaper or even free, or a number of other uses that provide value to customers or the ecosystem, regardless of effects on profit or growth.

RIE also affects utility, specifically in the realm of token distributions. Businesses no longer need to focus solely on maximizing the price of tokens being traded when revenue can be gained from tokens simply being traded. This means tokens can be designed with utility as the priority, rather than profits, circling nicely back into the vision of the Blockchain Web as an ecosystem of tokens for utility, rather than as currency. Tokens share this with stock in companies: when they can forego (or at least focus less on) ensuring the price goes up, they can be built to offer direct value to users.

Making Equity Accessible: Grouped Investment Bundles

At first blush, this may seem like a way to simply get even more money into the hands of the wealthiest who own businesses and tokens. While this will no doubt be used to that end, it offers an example of how to help those who currently aren’t participating in equity markets join the fray. By combining RIE with DAOs, we can imagine a collection of people joining together in DAOs that then list themselves publicly as RIE shares. This could be unions, or neighborhood representatives, or small businesses or any such collective that wants to receive funding. We can call these Grouped Investment Bundles (GIBs), and they can offer valuable redistribution of returns and rewards from equity.

To see how this would work, imagine we own a restaurant in New York City. Margins are low and demand is constant (not to mention cutthroat). We know a number of other restaurant owners in the city, and the story is the same for most of them, too. We want to have some breathing room on our revenues so we can pay our employees better, invest in newer equipment, and more. Here’s where the GIB comes into play. A bunch of us restaurant owners can gather together and form a DAO: call it NYC Restaurants (NYCR). We can make public our revenues, create a singular valuation for our combined business, and split the DAO based on our respective revenue shares. We publicly list our DAO’s token, NYCR, as a RIE token, and allow the wider investment community to trade shares of our collective business. The RIE sends us back royalties from the trading volume, and we split that amongst ourselves based on the share ownership in the DAO. This in addition to having a publicly tradable equity of which we have significant stakes. Now, without having contributed financial capital, collectively we’ve given ourselves more revenues and an avenue for more investment.

A New Economic—Not Just Business—Model

RIE and GIBs are more than just new tools to make money in the existing economic structures. My vision is that they enable a reevaluation of what we value in a business. The capitalist drive for productivity and growth to fuel profits is embedded in us culturally, and consumes our lives. Going back to Heilbroner:

This brings an implosive aspect to the expansion of capital, as daily life is scanned for possibilities that can be brought within the circuit of accumulation. The transformation of activities that bring pleasure- or use-values into activities that also yield a profit to their organizers thus becomes an important “interior” realm into which capital expands…

Much of what is called “growth” in capitalist societies consists in this commodification of life, rather than in the augmentation of unchanged, or even improved, outputs.

To put it into perspective, Heilbroner published these words in 1985. This is not a new problem, and it hasn’t much improved: web3’s promise for redistributing wealth and control sounds a lot like the early internet’s promise at the turn of the 20th century. But the tools and methods of making money will never supersede the ultimate goals, and thus the goals themselves must be adjusted. With RIE, we have a new technological tool that can change economic goals from that “commodification of life” to the “augmentation” of it. By adjusting the outcomes we can adjust the incentives, and in doing so usher in a better form of capitalism.

I’m calling this the Blockchain Web, explicitly not web3. The name web3 implies the functioning and uses for the web are completely changing. I don’t believe we should be tossing out the old and bringing in the new; rather, I think blockchain offers the potential to simply improve on the old. Consider cloud computing: we were able to write documents, build spreadsheets, send memos, listen to music, watch videos and much more before the whole internet was in the cloud. We still do those things, but now the specific devices we use don’t matter, and we can do these things wherever we have a connection. It’s all faster and simpler and more convenient than before. What if things like email and going to concerts and splitting the bill with your friends and even voting were not completely different, but just…better?

That’s what the Blockchain Web is about. By framing the blockchain (in extremely simplified terms) as a distributed and public database, we can think of the Blockchain Web as the existing web, but using the blockchain as the database, not corporate-owned databases. This doesn't redefine patterns, but maintains them while redistributing to individuals autonomy and control over the central component of the internet: data.

Now, this may still sound similar to every other web3 promise. Here are a few points as background to clarify the difference:

1. The target audience for the Blockchain Web is people unfamiliar, and even indifferent, to blockchain technology

2. The user experience should closely resemble current offerings, except for improvements. In other words, the details of blockchain are abstracted away, and people don't need to learn it to use it

3. Tokenomics and decentralized governance are often superfluous, irrelevant, and can even be detrimental to the quality of the actual products and services

The really important bit here is that this is made for people who don’t know, and maybe don’t want to know, about web3 or crypto or blockchains. The technology enables things that currently either aren’t possible or simply don’t exist in the modern web, but the details aren’t important to the user. So then what does it all look like?

The Purse

The “base layer” is a generalized wallet client. Undoubtedly, the wallet is the entry point into web3, and it’s the same here. The differences lie in the details of the wallet: it’s not so much for financial transactions, but rather for managing tokens that make up the rest of the ecosystem: identifiers, memberships, tickets, and similar intended to serve as utility, rather than currency. It could also be a messenger, able to receive messages from services and other people, and possibly be the client for a social network of sorts. Ultimately though, it should handle payments, but of a different kind: it can allow transactions from credit cards or bank accounts directly, without handling cryptocurrencies at all.

As it’s not just the wallet, but holds a lot more stuff, we can call it the Purse. Think Gmail (messaging) + Apple/Google pay + Ticketmaster “account” app + whatever else you can imagine. Bundle it all together and make it as simple as possible for everyone: none of the seed phrases and signing complexity that makes today’s wallets a bit scary. Many of these components exist already: WalletConnect is building messaging into their protocol, Magic offers tools for “web2” login for wallets, Mirror itself abstracts away the blockchain and provides a seamless experience for all sorts of actions (particularly blog posts: thank you Mirror!)

Beefing up the wallet to become a purse is great in theory, but requires the ecosystem of services to put it to use: the problems to solve.

The Services

Subscribe

Imagine an email inbox. At least for me, almost all the emails are ads or spam or newsletters I don’t read anymore, and very few are actually from people or services I care about. Going through each website to unsubscribe is a pain, and so they just keep adding up. The worst are the subscription renewal emails, that tell me I just paid for something I didn’t even realize I was still signed up for.

Now imagine unsubscribing wasn’t asking companies to remove your email: imagine it was you just hitting the stop button. Automatic renewals don’t happen, and they won’t keep burning you. No one you haven’t explicitly told can contact you is doing so.

This is possible with a token subscription model, where you are sent a token, possibly with a duration, that gives services the ability to send messages to you. And when you want them to stop, you simply burn the token. The service can only send messages to holders of the token, so now you’re gone. This model gives individuals control over their inbox and their subscriptions. Consider gated access to content, like a news subscription, and you don’t have to ask them to securely delete your payment and private information; just pay through the Purse in exchange for transferring you the token, and then when you want to cancel, again it’s simply burning it.

Unlock Protocol has built the groundwork for something like this: NFT-gated memberships, even renewable ones. Combining this with Purse, people could sign up for or purchase subscriptions through Purse, then use it as the inbox for messages from whatever companies. Again using Mirror itself as an example, access to sites is simply presenting your Purse credentials as authentication.

Tickets

I’ve seen this discussed numerous times, but still haven’t seen a convincing effort put into it: tokens as tickets to events. Each resale of the ticket in the secondary market would come with royalties, a la NFTs, that pay back the original artist or performer. Further, resales could be limited in price increases. This solves the problems of scalped tickets becoming too expensive, artists only getting small cuts of their initial ticket sales, and authenticity of tickets (by verifying the token holder on the blockchain). FWB’s Gatekeeper is an excellent implementation, but is only used for FWB events. I’m certain there are more, but this seems like a straightforward win. In terms of Blockchain Web, send the ticket tokens to people’s Purses, and they don’t even have to get a new app.

Voting

Another example of a technology that has an obvious parallel but I haven’t seen be implemented: DAOs as actual government voting. The last American presidential election was famously and incorrectly (and, annoyingly, still is) called fraudulent by many people. What better method to implement a secure, uncheatable voting system than the public blockchain, which cannot be altered and is visible to all? An application to do this type of voting would likely need its own client, not Purse, for extra security and verification of the voters, but distributing tokens as a way to “register” voters and then creating a proposal for each candidate is straight from the DAO playbook. Everyone on all sides of this issue should agree on this.

The Future of the Internet

That title itself is so grandiose to be a bit pretentious, and I apologize for that, but it has a nice ring to it, so I’m keeping it. The Blockchain Web is an ideal that emphasizes practicality in solving real problems with the internet today, using the blockchain when applicable. It won’t solve every problem. Right now, it’s being applied to many areas where it’s not quite the right solution. But there are many places where it does make things better. Note there hasn’t been mention of a governance token for these services, nor one serving as rewards for participation. The way to monetize these services, and this ecosystem, is the next chapter.