A Web of Value: Understanding the Next Big Thing in Web3
A look at recent inventions that launched on Arweave and how they enable the Web of Value
Recently, I posted an exposition on the state of Arweave ecosystem. That post served two functions:
- As a broad overview of everything that is happening in the Arweave ecosystem in 2022 (upto August).
- As context for the innovations being referred to in this post.
Today, I want to talk about the new innovations being built within the Arweave ecosystem, as part of a larger theme of a Web of Value. It lays the groundwork for a system of publishing on top of Arweave.
First, as is canon, let me tell you about the problem(s) with publishing and content on the internet until today.
A Brief History
The history of the internet is laden with incidents of technological advancement pitted against the attempt of large enterprises and media companies (traditional publishers) to prevent the open sharing of media. A brief sequence of events:
- The MP3 standard, piracy, remix culture
- Spotify - Subscription revenue based models
- Youtube, Facebook and Instagram - Advertising based models
- Bittorrent & Arweave
As early as the 1990s, the recording industry was at war with networks of people in IRC chat rooms on the internet spreading copyrighted music. This legal offensive had mixed success for the record labels, but it was also a sign of something that had changed in the economy: the addition of a new class of goods — information goods.
Information goods (digitally encoded music, movies and text) are fundamentally a new type of good. Consumers gain utility from “consuming” these goods, but there is near-zero marginal cost of re-producing the good (a movie or song or story needs to be created only once). This is due to the nature of information itself — information is infinitely replicable, at no cost.
Information likes to be free.
How Music Became Free
In his book How Music Got Free, Stephen Witt talks about the difficult launch of the mp3 standard. The promise of MP3 in comparison with traditional music distribution channels was captured in this sentence,
If something was available for free, and could be freely and infinitely reproduced for free, with no degradation in quality, why would anyone pay to own it for a second time, when they already had it, for free?” — S. Witt
This standard was not accepted by the recording industry for fear of piracy, but was nevertheless released privately online by the developers of the standard. This simple act led to the proliferation of large amounts of music content being shared via the internet, and led to a sharp decline of music industry revenues.
There was no business model for the community of pirated songs dealers here. People just shared data because it was cool to do it. Nevertheless, this phenomenon sent huge shockwaves throughout the music industry, severely upsetting revenues before Spotify and other players emerged in the mid 00's to “rescue” the industry.
Why did this happen? There was such a huge divide between the promise of the internet unleashing information and the opposing business model of record labels that it was not possible to reconcile the two. Public goods — goods that are non-rivalrous and non-excludable — provide a good mental model for information goods.
Witt’s observation is prescient in its application to not just music, but the larger class of information goods more generally, as we shall see.
Subscriptions have been very successful and are the prevalent mode of distribution of digital media today.
But when you look closely, with subscriptions on the internet, the consumer ends up paying primarily for aggregation and convenience, and less for content. If I really want to, I can torrent every song on Spotify or find every blog post on WSJ - but for a small enough price I’m happy to pay for the convenience of aggregation and discoverability that paid subscriptions provide. Additionaly, the way these centralized platforms are structured, artists earn a small fraction (about 12% in Spotify) of the revenue that is generated by the platforms.
With subscriptions you are making information goods non-rivalrous but excludable — your watching of a movie on Netflix does not really diminish its quality for others, but you can be excluded from viewing content if you don’t pay your monthly subscription.
Subscription-based distribution still amounts to caging information artificially. It is arguably closer to the promise infinitely replicable content, but not quite freely yet.
The Attention/Advertisement Economy
Advertising was another dominant force in the evolution of the internet. Since 2005, corporations like Facebook, Instagram and Youtube have created extremely valuable companies by monetising the attention that content on their platforms accrues.
Replicating business models from radio and television that worked exceedingly well, these platforms injected advertisements for other goods into content that was already being consumed by people. With advertisement, sellers of products buy a fraction of people’s attention by trojan horsing advertisements between desirable content.
Fair enough, some product placement between desirable content. Advertising doesn’t sound terrible, right? 🤷 The heart of the problem lies in the fact that advertising is changing the definition of “desirable content”.
Often wasteful content is wrapped inside “evolutionary casinos” that make them incredibly addictive for consumers — we all know people that spend a large portion of their time doom-scrolling on social media platforms. For creators, this model incentivizes a race to the bottom, i.e. creation of often-wasteful content that is designed to keep the user engaged and expending attention. Further, advertisement is extremely inefficient — creators create hundreds of hours of content of questionable utility to yield a single hour of monetizable advertisements. All this means that the traditional web is dominated by inefficient attention sinks.
Even useful content has been compressed to its most basic form to keep up with shrinking attention spans. Essays and blog posts have become tweets and memes, movies and documentaries have become reels and 5-min youtube explainers.
As someone who has spent hundreds of hours in the abyss of MOBAs (online multiplayer games), I have first-hand experienced the decadence and emptiness that an economy driven by attention bestows upon its consumers. Often, I look away in defiance and hum something to myself to avoid watching or listening to advertisements on youtube.
If viewing advertisements is thought of as a payment (via scarce attention, if not money) from the consumer to the platform, then ads also fall in the top right section of our rivalry-excludability categorisation.
Setting Information Free
The previous generations of information distribution were, for all the reasons explored above, fundamentally mis-aligned with the promise of openly shared and accessible information goods.
There are three necessary components of creating permanent, openly accessible information goods.
- Open Sharing: There must be incentives to share information with others.
Bittorrent pioneered the incentivized sharing of data based on optimistic tit-for-tat: you share your data because then others are more likely share their data with you. This is in-line with the promise of the internet.
- Immutable (Permanent) Storage: There must be incentives to store information such that it is always preserved in its original form.
Arweave, live since 2018, took this model pioneered by Bittorrent and added an economic incentive layer for permanent storage of this data. All data stored on Arweave also has an associated hash, guaranteeing immutability.
- Creation Incentives: There must be incentives to create information goods, greater than the sum of permanently storing this data (via an Arweave upfront payment for example) and the opportunity cost of time spent creating the good.
Until now, due to social and technological limitations, this was the key missing piece. The rest of this blog expand on the capabilities being developed to enable the Web of Value, the monetization layer on Arweave.
Creation Incentives - A Web Of Value
After a lengthy prelude, we are now ready to discuss the Web of Value. How is it different from earlier business models, and, why now?
Let’s consider first how Arweave is different from other publishing platforms. The difference: data on Arweave is immutable and open by default, so it is in-line with the promise of the internet, allowing the creation of all digital assets as public information goods. As a result, it acts as an open commons for the world’s knowledge. By its properties of openness by default and infinite replicability, Arweave is poised to be the foundational platform for the publishing of media.
The Web of Value refers to a monetization layer on top of the new web being built on Arweave, enabled by atomic association of media and its contract data using tags. It consists of:
- Content published to the network: Videos, images, memes, podcasts, blogs.
- Vertical ownership tables: Smart contracts that contain ownership data for the content.
- Horizontal protocols adding revenue across the monetizable web: Protocols that reward all owners of assets proportionate to their ownership. A first example is STAMP protocol (detailed below).
- Networks and platforms for discovery/trading of content: The user-facing layers for interacting with, consuming, aggregating, creating and trading data assets.
The web of value exists to solve the problem of Creation Incentives in an open global knowledge repository. Since data on Arweave is immutable and open by default, it is critical to incentivize creation of data. This requires us to come up with entirely new ways to reward creators. How will open information goods be monetized?
We have some guesses, but we don’t know for sure (we’re inviting devs, tinkerers and new-age publishers to figure these out). One reason to think an open-access content distribution model works is the large NFT bull-run that took place in 2021 - it showed fundamentally that association with valuable content, creators and communities is also intrinsically valuable to people.
Apart from NFT sales, there are other ways for creators to monetize — horizontal protocols being built on top of NFT “cap tables” that help content sponsors gain additional revenue from supporting artists.
Some experiments are underway -
STAMP Protocol was the first innovative revenue protocol in the Web of Value—the motivation for it comes from this article on additive-sum currency. The idea behind STAMPs is simple - it rewards creators who produce content that other people want to stamp (publicly associate with). It does this by periodically releasing new tokens to creators that accrue the most stamps.
Finally, we have the end-user applications that allow users and creators to trade, interact with, create and curate content. The first sprint of the minimum-viable WoV culminated in the launch of Now. Without saying too much, it is simply -- a place to trade culture. I invite you to explore Now -- simultaneously the homepage and "meme-market" of the permaweb.
Minimal Viable Web-Of-Value (Why now?)
The reason we’re talking about the Web of Value today is because, not so long ago, all the necessary tools to start this exploration in the Arweave ecosystem were released.
Two key infrastructure pieces for a market for open information goods have been missing from the Arweave ecosystem:
- A mechanism for Sybil resistance (important for revenue protocols)
- A unit of account and a means of exchange in smart contracts (important for exchanging ownership of assets)
Missing, that is, until last month.
- Vouches allow any wallet owner to signal the humanity of any other wallet owner
- VouchDAO allows a decentralized trust layer for deciding who is a credible voucher
While Vouch DAO and a Twitter vouch service, are the first two examples of sybil resistance mechanisms built on top of the Vouch standard, there are many other options to explore from.
Unit of Account & Exchanges
Burnt AR - a unit of account on the Permaweb was also recently launched in production. Burnt AR is minted everytime AR is sent to the endowment. With Arweave’s endowment model, each bAR can only be minted once in 200 (or more years) from a single AR. Using this provable scarcity, we created a unit of account!
Finally, Community Labs also recently released Verto Flex, a library for embedding programmable exchanges directly within every asset. This, combined with bAR, creates the foundation for an economy of exchangeable information goods.
All this infrastructure launched in one step function addition to the ecosystem, but it it is still very early.
How do you play around with this?
- Go to Now, and look for items with a "For Sale" tag, including this page! 😀
- Get vouched
- Create your own permapage
- Upload an image via Img
- Stamp your and others' assets and watch them rise and fall on Now!