David Phelps on Crypto Cults, Railroads, and Revolutions

Hey everybody, welcome to Infinite Money Glitch, our show about crypto, business, and everything in between. I'm Zach, I'm here with my co-host Martin, and today we have a very special guest, Mr. David Phelps. David, welcome to the show.

Slightly special, slightly special guest. It's up with Helen. I mean, come on.

Yeah, not, not that special.

It's not that special. Like, you know, like, it's kind of special.

It's good to see you, man. Thanks for coming on.

Hey, what's up? How's it going?

Everything is good. I guess to dive right into it, tell us, who are you and what was your earliest memory of the internet?

Yeah, I'm David. I was trying to— I was, you know, you sent me these questions like 3 minutes ago and I was like, what? Why don't I try to just make something up? I was, I think, mid-'90s. And like the internet, so something I was thinking about actually is like the internet in the mid-'90s is kind of like apps today in some ways, or actually I would even say the internet today is kind of like apps today where it's like, I don't know if this is true for you guys, like you probably spend like 90% of your time on like 5 websites. And it's like, you know, those really are capturing like most of your usage the same way you spend like 90% of your time on like 5 apps. And so it's like you get on the internet in the '90s, you're like, wow, there's websites. Like, what should I go to? Like, there's all these websites out there. I gotta like see what the cool ones are. But you're like, you know, you're like a kid and you're like, I guess disney.com. Yeah. It's like, what else are you gonna get? Like, what are the websites you want? You don't want to go to like the Hyundai, you know, like website.

Sure.

Right. So it's like that. And then you're like, okay, this is kind of lame. You know, it's just like a bunch of tiles or whatever. So you end up spending like most of your time in like the AOL like chat rooms, and it's like, which is of course is the Twitter of like the mid-'90s. It's just a bunch of people hanging out, uh, using, you know, crazy anon, uh, you know, accounts and then posting lewd and vulgar things to each other to try to get attention. Um, so Twitter basically, um, without the character count. And so like, yeah, my earliest memories are definitely spending, uh, I think a lot of time in, uh, Yeah, in the AOL chat rooms. And yeah, you know, like, as I think I was lucky, like, as a young boy that no one seemed to care about me.

Yes.

Obviously, I would lie. I'd be like, I'm not 8, I'm 13, you know? Yeah, yeah, yeah. Like, on the internet, I can be old, you know, like a cool, cool 13-year-old. So I spent a lot of time learning how to lie on the internet, LARPing from an early age. Um, yeah, performing my way through those chat rooms for sure.

And how do you think that that has changed or stayed the same over time? Like, you, you brought up the relation to Twitter and how there was this kind of online town square, so to speak, and that has kind of changed over time from AOL to Twitter. But other than that, how do you think like your view of the internet has evolved, or what has surprised you over the years?

Yeah, I think I'm always shocked by people who think the internet is not for LARPing. I remember I got, I got, I was one of the first users of Facebook, actually. This is aging me. It was one of the first users of Facebook and like in year one, and my friends and I got it and we thought it was like the most hilarious thing. We were like, let's all pretend to be football players.

Yeah.

So we got like a bunch of like, you know, pictures of like dumb football players and just LARPed our way. And we were like, this is so funny that you can just like create communities of like, Pretending that you're like in any way authentic online. And for us, it was this whole joke that anyone would ever take this thing seriously and think that they were like actually acting out their real selves. So we just pretended to be people. We staged drama, like, uh, all of which I'm still doing on Twitter to a great degree. Like, it was just like, like it was so clear that the internet was this totally inauthentic performance of yourself to get attention. And so like, you know, I just always treated it like it was musical theater. Uh, and so I think I've been shocked that there are people who don't do that and actually like think that this is like an authentic version of yourself that you're presenting. And it, and it, and that it's moved that direction as well, where now we live in this kind of terrifying world where it's like the people's real life identities is imitating the crazed people that they become online, where it's like not only have you become a crazy person online, but now you have to start acting like that in real life, uh, as well, which is kind of terrifying. The other early internet thing I was going to say is like, there's this Avenue Q— probably shouldn't share this, but this is fine. There's this Avenue Q song from like 2002 that was like, the internet is for porn. Beautiful song about the primary use case of the internet being porn. And it's like, definitely like late '90s, early 2000s, that was pretty true. Like, the internet wasn't really good for anything except Finding things you couldn't get in real life. So there's that great interview, right, where David Letterman is interviewing Bill Gates and is like, oh yeah, what's this internet thing for? Like, what I'm going to find? And Bill Gates is like, well, you can find other people who share your interests. Like, they also like cigars. I like cigars. I'll meet those other people too. And Letterman's like, oh yeah, that's like a great use case is like a bunch of cigar people can find each other. But it's like, you know, something I think about a lot is like, you know, I grew up in a small town in a small high school. And it's like, like most small towns with small high schools, there's 2 types of interests that people have overwhelmingly, and that's theater and sports. And that's like, those kind of dominate the school environment. And you think about like with the internet, it's useful, you know, if you had like some weird esoteric interest outside of like sports or theater, you probably weren't going to be able to find it there. You know, we weren't big enough to have like a Dungeons and Dragons club, you know, never mind having like a you know, like a crypto club or whatever, you know, like, uh, or programming. So like, you want to— you have some esoteric interests. The internet's really good for that long tail of like subcultures where you trade in, you know, finding someone around you who shares your background but probably doesn't trade, you know, share your interests. And on the internet, you find someone who doesn't share your background but probably does share your interests instead. And so like, you know, porn was this like initial use case in the early 2000s because it was this thing that you couldn't get locally, right? Like, it It was like fundamentally something you wanted to do privately and like, you know, and find online. And that's very similar to the rise of crypto being through like drugs, right? Like illicit use cases are always, like when you see illicit use cases, you should be like, this is probably a transformative technology. Like this is probably gonna change things. But I do think what stayed the same is like, despite the fact that porn is no longer the primary use case of the internet, well, maybe it is, but like assuming it's not, is it like, you know, what the internet is still really good for are these subcultures and subcommunities. And that's a long way of saying like, a lot of my interest, I think, in DAOs and tokenized communities is really building the next iteration of that where you can start building incentive models for what the internet is fundamentally good for, which is subcultures. So anyway, that's the end of my rant.

Absolutely. No, I think you brought up a lot of really interesting things. I think the first is the similarity of the old internet to quote unquote the new internet that we're seeing today. I think, you know, we've seen the kind of pendulum swing from decentralized communities to centralized platforms back to decentralized communities again. And you've written a lot about this. And you tweet a lot about kind of new age communities, cults, and the like. And you texted me a bit about how you think that crypto is prone to cult-like behavior. Why do you think that's the case? And can you say more about that?

Yeah, first of all, I think, like, everything in 2022 is pretty prone to cults. Like, you know, the breakdown over the past 10 years of like centralized authority and the rise of user-generated content, has meant that we just don't trust these kind of like old institutions, right, as arbiters of belief systems. So like, um, we're all turning locally to like, you know, these more decentralized P2P kind of networks of like hearsay online, citizen journalism, you know, et cetera. And that's not just crypto, like that's across the board that like people are looking to user-generated content. And so that's much more cult-like. Like you look to a local authority figure within a much smaller community. to set what you believe is true, even though you know it's outside the bounds of mainstream belief because you don't trust the mainstream. So like cults are just kind of like, you know, they're predicated on being anti-mainstream, but they also are mainstream in 2022. Like most things, yeah, most things are cults. But like, I think crypto is especially prone to it because like the type of people who join cults tend, you know, people think that like people who join cults are gullible or they're like naive or they're like, And it's actually not really true. It's like people who join cults tend to be really skeptical. They're really skeptical of the status quo. They don't believe the status quo. They're actually— so they're like, they're already, you know, looking to poke holes through things a lot of the times, right? They're also idealists. Like, they tend to believe in like a transformative new system that is much better than the current one. They tend to have a lot of gripes with reality that are usually very well-founded as well, and then look towards some sort of savior figure, you know, idealistic way of overcoming that. And they tend to be people who are dislocated and so don't necessarily have stable homes, stable families, stable environments. And so they're looking to find those things as well. And so like, what is someone on the internet today like? You know, people living on the internet, like, that's, you know, you're fundamentally already dislocated from your like physical reality. You're, you know, you're in this like virtual reality all the time. And, you know, people in crypto, like, are largely nomadic, um, are very idealist, are very skeptical of the current system, have, like, a belief about this transformative technology that can really change things, and are looking to build small communities with others, uh, who share these beliefs. So it's like, it's, it's very, very prone, I think, to cult-like behavior. And of course, like, cults are based on some localized centralization, right, of, like, a local figure who commands you and tells you what to believe. DAOs should not be based on that. They should be based in some ways on like P2P economies and like, you know, equal contribution of contributors. But we are humans and we are tribal. And so it very quickly can devolve into these things where, you know, yeah, if you're a cult-like personality, crypto is a good place to be. Like, it's pretty easy to find a bunch of people who are idealists who you can probably speak their language, exploit them, get them to believe, you know, what you believe, not, you know, not to identify any, you know, major figures here who might have just destroyed our industry. Um, but yeah, it's like, it's at every level, you know, right? Like SBF, no, it was no one's idea of a cult leader, but he was 100% a cult leader.

Yeah, it's, it's, it's interesting you bring up this. Oh, go ahead, Martin.

Yeah, I was gonna say, um, this is more of a kind of a hypothetical, but connecting back to the also the comments about being anonymous and kind of creating fun personalities on the internet, it feels like there's some sort of thread between like These anon figures on Twitter who like have hundreds of thousands of followers and like can basically like direct money or attention to any single thing. Um, if you were, if you were to start a crypto cult, how would you do it?

Hmm.

Like, like assuming I'm a bad actor, like I'm malicious.

Um, I would say ethically maybe neutral, not as well. Yeah, I guess that probably means—

Well, I'm not going to start a cult.

Yeah.

Well, I gotta, I gotta be a little nefarious here. Come on, Martin. Like, yeah. I mean, okay, okay, okay.

Yeah, let's say bad actor, somewhat narcissistic, like just wants power or money.

Right, right. How do you do it?

Yeah, how would you do it?

I don't know that you do it by trying to build a giant following, actually. I don't know that giant followings equate to being a good cult leader. Um, you know, part of being a cult leader is that you've traded off scale for passion of belief. So in other words, like a religion is like reaches tons of people who like go to church once a week and they're like, yeah, this is part of our life, but it's not our main focus. A cult is like, this is your entire life, right? And it's a much smaller set that's easier to coordinate. So like being, you know, having a giant following online of people who like, yeah, they read you a few times a day and they think about what you have to say, that's not really building like a strong passionate people, you know, A community of people who are right behind you. So you might be able to do it that way. There might be leverage to do it, but you're going to need to actually create some sort of tight community of people who are believers. I do think the weakness of the comparison of cults and crypto is that it is really hard to be totally focused on a cult when you are online because you're distracted and you're not there in person and there's nothing really being required of you physically. But like, yeah, if you want to set up that cult, you might start off by building a following, but what you really need to do is get people really excited about your project, create a lot of FOMO, probably do a lot of the fake trades where you're buying up your own work from alternate accounts and showing that everyone else is in it. And getting everyone excited to be part of something that they feel is too good for them. And then it's all about gatekeeping, right? Like, you really want to make people feel really special for being part of something where it's like, yeah, they have to buy their way in, but that's not going to guarantee that they're going to get in. And then you have to like, you know, really show that they're getting to be part of a cool crew of like special people, et cetera. So there's a lot of, yeah, it's hard to do, but it's also possible to do because it requires a mix, I think, of what I think of as the 3 incentives, like financial incentives, social incentives, reputational incentives. And it's like, you can put all of these at play to be like, yeah, we got to buy your way in, but you also have to be part of the cool kids and be, you know, recommended. And you also are going to build a cool reputation for yourself if you do this. And like Web3 really enables all 3 of these things to happen. So it would probably be leveraging all 3 of those incentive mechanisms.

What do you think? What's the difference between social and reputational incentives? Can, because to me, those, those feel like the same thing. Can you, can go a little deeper on that?

Yeah, so a social incentive would be like relationship building. It's like a chance to hang out with your friends, do something fun with them, compete with them, build, yeah, just build a relationship, right? A reputational incentive is your ability to build out a reputation for yourself that will get you access and opportunities in the future. So saying like, I've contributed to this project, I've built this thing, I voted this many times, like all of those things, right, are building out like your on-chain reputation in a way that like can get you discounts perhaps in the future or airdrops or like access to new communities or whatever it is. I would say like social is like very process-based and like reputation is maybe a little bit more like ends-based. Like it's about the opportunity you get out of that, whereas the social is the opportunity itself. It's like the chance to hang out with friends and do things that are meaningful in the moment for you.

Yeah, social feels like two-directional and reputational is just like one-directional, right? It's just like, what do people think of you?

That's probably true. Yeah, that's probably a good way to think about it too.

David, you brought up an interesting point that is sitting in my head, the kind of tension between the types of people that generally join cults, internet communities, whatever you want to call them, and the resulting organizational complexity or coordination complexity that results from that.

Right?

Like the people who want to join a cult or the people who want to join a community generally have gripes with reality. They want to change the world in some way. But then what we've seen in the past is that when you get too many cooks in the kitchen, it's really hard to make any like solid decision that everybody can agree on in some capacity. And so there's a lot of people that would say that, oh, DAOs have failed. I think all of us here would argue that they're probably just a bit too early. But you have some strong thoughts on the quote unquote failure of DAOs. And I think you think regulation may be a good thing for them. What can you say about that?

Yeah, yeah, yeah, yeah. There's a bunch of different tangents here. You know, one is that, what's that line like Hinge uses where it's like, you know, if you're successful in this app, you'll leave it. Maybe it's Tinder says this, like one of those dating apps.

Yeah, we want you to delete the app or something.

Yeah, right. 'Cause you found the other person. Like, I think DAOs might kind of take that stance a bit more. Like a successful DAO might be one where you meet other people who share your interests and then you go form a subDAO and you like leave that main group because you found the people who are meaningful to you and you want to be with through that bigger project. And then maybe you go and you help build stuff together for that bigger project and accrue value to that token or whatever. But like, maybe, maybe the, you know, a DAO is really powerful actually if it breaks up into subDAOs. And part of the reason I'm thinking this is like to go back to that '90s, you know, like chat room or Twitter, right? It's like fundamentally, yeah, you start off on these platforms to like meet as many people as possible, but your goal is really not to be friends with all those people, is to filter quickly to find the people you actually care about and want to build relationships with. I think that goes to the failure of DAOs to date, which is like they've been really good at acquisition and really bad at retention. And the reason they've been really bad at retention is because they've been really bad at building relationships. There's really nothing for communities to do. do, right? Like a lot of what we're building at JokeDAO is just a way to say like, let's give your communities something to do. Like let you actually participate or like, you know, submit or share ideas, right? In a meaningful way that is actionable, builds your reputation, can be acted on, et cetera, right? So like, I think, yeah, there's just been a lack of genuine relationship building. And part of that is also just like tokens where they've been really good at acquiring users because people buy them for the financial incentive and join the Discord. But like, that's mercenary behavior that doesn't really lead people to stay. And there hasn't really been anything for communities to do, like, except own a token. And it's like, that's not a powerful community. So like, yeah, if anything, we have to learn more from cults because it's like, these are bad cults. Like, they haven't been very good at it. The regulation piece, I think, is also that like a lot of DAOs are shockingly centralized. Like way more centralized than any Web2 company would be, right? So you have like founders who own most of the tokens. They're then supporting initiatives for themselves to pay themselves out from the treasury. And it's like, you know, this is not technically a rug. Like they created the project themselves. They've built a powerful community of people who support them and are buying their token. But it's like fundamentally that, you know, They're just supporting their own causes and they're not really listening to the community or giving the community anything to do as well. So this again goes to that issue, like communities have nothing to do. But part of the reason communities have nothing to do is because founders tend to be pretty egocentric and are using the token in ways that are financially benefiting them, right? To pay themselves out from the treasury. That raises a whole host of security issues in the US because once you're using a token to vote for initiatives to pay yourself out in any capacity, you're basically, you know, dealing with some potential security, right? So I do think like, you know, that's where regulation can be powerful. You know, I would like to think that crypto should be able to regulate itself. We should be able to like set up on-chain, you know, structures or just fork or not need outside regulation. But to the extent that regulation is helpful, it's in saying like, actually, no, founders should not be able to just financially benefit themselves with the token. The community should be the one who has power. Like, for this not to be a security, communities should be effectively Choosing who the core team is, and community should be hiring the core team and then delegating power to them and then choosing how to pay them out. And that way the token holders who are making, who are voting are not directly financially benefiting from it. And I do think that's a good thing. Like, you know, you shouldn't, token holders probably shouldn't be financially benefiting directly. You know, and that raises values about, you know, questions about like, what's the value of a token then, et cetera. But like, yeah, fundamentally I think. That kind of regulation will help communities actually have greater say in creating models where they are hiring the core team. The core team actually is subservient to the community of token holders rather than vice versa.

That's interesting. And so if we just strongmanned the pro-regulation argument there, how would you strongman the anti-regulation argument or the argument that crypto can regulate itself? Tokens are this amazing mechanism for people to you know, engage in governance in a way where they can solve these problems themselves? Like, what is the, I guess, what is the argument there and how would people think about that?

Yeah, I, well, I think the argument is like, you know, the best, ultimately the best structures will win and that might take 10 or 20 years, but like, if you're a founder making sole decisions with the token, like, there might be cases where you have some really brilliant founders who make really great decisions on behalf of the project and that goes really well. But even when that's the case, why would anyone want to own the token? What does the token represent if they don't get a say in this and they're not getting to be part of a community where they have impact? It's not really a DAO, it's just a company at that point, right? But I think the other argument is if we really believe in DAOs and we really believe that forms of community governance, and those might be hierarchical and delegated and et cetera, but we really believe that community governance is a better model for running projects. Then those are the ones that'll win. And like, they will win because they have better incentive models for people to buy the token and get involved in the project and build and build out the value of that token as well. Because they're actually open and, you know, not based on this fundamental inequality of a founder controlling all the token too. So like, you know, this is, I guess, almost like a free market kind of incentive mechanism that over time value should accrue to the ones that actually are best run. And the ones that are best run should be the ones that are you know, um, community-focused and community-led, uh, in, in some ways.

It's really interesting because, I mean, we, we look throughout history of, of capitalism mostly, and you see that success has generally gone along with the centralization of power. And the biggest thing that we are saying here with crypto is that it kind of shifts the power. Maybe.

I don't, I don't know that that's true. I mean, like, empires were very much based on decentralization, Right? Like, like empire, like, like, I mean, it depends how you define it. Empires, like, you know, one of the things they had to do is they had to make sure that there was like a unified language and a unified, you know, measurement system, unified roads, right? With the same width, you know, unified train tracks. Like to that degree, yeah, there's this kind of like, you know, imposition. But, you know, most successful empires were, you know, would, would ensure that local communities still kept their cultures, their beliefs. Right? They had their local leaders who were delegates to represent them to, and they were really like coalitions, right? In which they're saying, look, we're going to create coordination systems for you to coordinate with the rest of the group. The coordination systems are the measurement system and the roads, right? But like, fundamentally, you know, you should still be able to maintain your own core beliefs, et cetera. And that makes sense if you're like the Roman Empire, because it's just like you didn't have the technology to be able to like control everyone within these regions. You really had to trust that they were going to want to stay within that culture and not rebel against you because they had their own beliefs protected, etc. So imperialism and colonialism and the destruction of local cultures, especially French in Africa would be the major example of that. A lot of that is coming out of new technologies that allow for better coordination in some ways, but are really disastrous long-term as well. So I don't know. The pendulum shifts a lot. I'm not trying to present a defense of empires either. No, no, no. But like, but, but you know, it's, it's, it's a complicated thing where there's always been this back and forth, I think. And like, yeah, like what is the history of the US? It's a history of like local government versus federal government, you know, for 300 years of like, who has power here? Is it states? Is it, you know, or is it the federal government? Like this is not an exact. decentralization versus centralization argument, but it's very core to the ways that there's been this massive tension within US politics that continues to dominate today between these different kinds of systems. To what degree do we want direct democracy, et cetera? So yeah, my belief in DAOs is really in thinking, actually, we can think smaller. If we can go smaller, we can have more direct democracy when you only have to coordinate 10 or 100 people than when you have to coordinate 300 million. You can't have direct democracy at scale, but you can have it in smaller ways. And if we can create these smaller communities and then have these like, you know, rails for them to coordinate with each other, I think that that's, that creates like a lot more individual impact, enables a lot more individual impact.

I have a more of a zooming out question, but you have really interesting takes on all this stuff. Like, and you were able to connect dots to things in like history and technology and law and all this stuff. And I'm just curious, like, what is your background? How did you end up here? Because I think a lot of people in this space just like stumbled in. And so a lot of how they perceive crypto is just within crypto. And I think you have this ability to zoom out and like, you know, we'll talk about your post on railroads that I thought was like fascinating because it connects these dots that I didn't even know about the railways, like bubble of the, you know, 1800s. So yeah, like how did you end up here? It doesn't have to be like a long answer, but I'm just personally curious.

Primarily by being ADHD. I think it's like, you know, being like really distracted by like a lot of broad issues and then connecting dots between them without ever really going that deep on any of them.

You've gone pretty deep on a lot of this stuff, man.

It's probably my main answer. There's 2 answers from my background that might be relevant here. One is that I ran a a tutoring agency for years, and this is really my first company where we created the highest paying tutoring firm in the world. And I also worked as a tutor for a decade. And so I was tutoring every subject, like all the way through. So like, yeah, I, it's almost like I got to go to school for an extra 10 years, which is pretty cool. So that's maybe one answer for that. I think the other one is like, I also come from a background about a decade ago, deep in like film, art, and music. And doing a lot of criticism and writing on those subjects. And one of the reasons that I would say movies in particular always really appealed to me was because when you watch a film, you can watch it through so many lenses. You could watch it through the lens of history to be like, here's how it's conveying the zeitgeist of the time, or here's how it's representing the historical production of Hollywood or whatever system created it at the time. Curious how it's capturing that time, right? You can watch it through the lens of aesthetics, you know, in terms of like lighting, sound, uh, and how it's done. You can watch it through, you know, narrative in terms of storytelling, psychology, et cetera. Um, and, and so like being able, like movies were always really nice for me because they were, they were this bastard art that was just like, um, allowed me, there's always a way into a movie. Like, you know, it can be absolute dogshit in how it looks. But there's going to be something interesting about why it was made or the history of that. And I think crypto is very similar to that. Crypto is this thing where it just is at the intersection of all of these converging interests that it tends to draw a lot of people who are really generalists. You can always find your way into crypto through history. You can find your way into it through economics. You can find your way into it through art, through culture. through social community, sociology, like whatever your interest is, there's probably, you know, tech, obviously math, cryptography. Like there's a way that crypto is interesting, not only for each one of these fields, but the way that it connects them all together. And it's the first time I've really felt that way about anything since movies to be like, okay, this is like a field for generalists because it allows you to connect the dots between all these things as well. Of course, there's also the most brilliant people in the space who are so deep on cryptography, et cetera, who are here. And it's just like a privilege to be able to even read what they're writing every day. But I think it's a really cool space for that reason of finding a lot of people who are like, I don't belong to one thing. To go against my cult argument, this is really for people who are like, I don't believe in just one thing. I'm more interested in the intersection of these industries than in any individual one.

I feel the same way actually about crypto. It's just like, there's like any opportunity to do basically anything. And there's just so many people coming from different backgrounds that makes it like, it feels like you can have your cake and eat it too. And everything you study and learn about somehow connects to crypto in some way, which I relate. I don't, I've recently, I've been wondering if I have ADHD. I don't think I have it, but I definitely feel the thing about just like, just being, just getting sucked into different threads all the time. And I feel like the space like allows it and encourages that in some ways.

Yeah, bastard arts, I'm very into.

For sure.

For sure. I know we talked about the railroads a bit, and I want to double-click on that. But it seems like one of the things that you keep talking about, David, is this idea of like, you know, forking or replication of some kind. And, you know, Bology talks about this a lot too, where, you know, you can judge kind of the quality of academic research paper of some kind based on independent replication, like how many times has somebody basically taken that piece, written a criticism of it, or otherwise forked it in some way. And obviously, this idea of forking normally comes from code. And so you've talked about this a lot in terms of the best communities being the ones who are most forked or have the most niches that, that stem from it. How does your kind of railroad analogy or the history of railroads relate to this, if at all? And what can you say about the connection between railroads and the internet?

Yeah, that's a good question. That's actually probably a prime difference in some ways, is like the history of railways, right, is that like even you had these like— man, the history of railways is so interesting. So like you have like these different gauges, right? And so like even finding like a standard track length in order for different railroads to be able to all travel across the country on different lines. It's almost like the discussion we have today about multi-chain, right?

Mm-hmm.

It's like, yeah, we're trying to find these ways to like, you know, get one thing from one chain over to another, but it's obviously so much easier when you just have one chain that everything can operate on for composability, right? And I think that's probably the more, you know, pressing analogy in some ways. I don't think, yeah, I don't know that the railways enabled forking exactly. I'd have to think more about that one. What it did do is enabled, I think, like entire new industries. It also, but if anything, it was a standardizing force in some ways. So this might be a big difference, right? Is that like one of the, like one of my favorite parts of the history of the railway is that you didn't really have standard time in the US. until you had the railway, because there was no reason for one person on the West Coast to have to coordinate exactly second by second with someone on the East Coast. But once you had railways and they're all passing all the way through, you have to make sure they're not going to hit each other. So they have to make sure that everything is being perfectly coordinated according to the standard time system. And so if you stood on a hill in the early 1800s in a small town or like, you know, nearest small towns, you would hear the bells ringing out the hour in totally different times from one town to the next. Because they were just, you know, going off of like roughly when the hour was and they would listen for each other, right? So you would hear like one town would listen for the next town over and then when it started ringing its bells, they would start ringing their bells. And so, you know, you had this like kind of P2P system of like, you know, people figuring out what time it was roughly. without any real discernment because there was no need for that to be standardized. And once the railway came in, all time, time was standardized. And that's the first time we had standard time and time zones, right? All of these things as well. And so I think like those are the kind of parallels that are probably most relevant, you know, to the internet and to crypto is thinking like, how is this like forcing new standardization of data? New accounting practices being standardized, right? Like new data transparency. I think what will get really interesting is with content. Where AI will feed into this really powerfully to be able to say, like, look, if all of our content is being stored on like a data storage blockchain, like Arweave, like AI can make sense of what's a movie, what's an artwork, you know, what is movies about Ronald Reagan, and it can start indexing all of these things in ways. Like financial blockchains have standardized data because there's very little data you need for a financial transaction. It's like who sent it, who received it, how much, when. With content, it gets much, much more explosive in terms of the variables there, but AI can make sense of that a lot too. And so I think like that's what we're going to see is like the standardization of data that really enables us then to like have our own contributor profiles where we've like aggregated all of our on-chain activity and like built out a profile for ourselves. Like that's what'll be powerful. The forking permissionless thing, I think like to the degree that's relevant for Railroads, is the idea that like Anyone can now build businesses off of this thing. And that's not totally true for a railway the way it is for crypto. But like, I do think there's a way in which like, you know, the railway, like allowing you to transport to anyone else in the country allows you to massively scale your business, right? Um, in, in a way you couldn't do before because now you can reach anybody. And I think that, that kind of like permissionlessness in that sense of being able to reach anyone is true for crypto too. The permissionlessness about being able to build on top of anything is pretty new. And that's pretty unique to crypto, I think, and pretty special property that I don't know, I don't know we can map on historically. And that's also what enables forking too.

Yeah. So you talked about like, you know, you talked about forking, which is this like kind of divergence from the mean of some kind. You've talked about AI's relation to crypto, which, you know, is normally seen as a centralizing force in some way, you know, aggregating and standardizing, of course, but really aggregating all of this data into one place that we can, you know, run analyses on it. How do you view this kind of tension of centralizing versus decentralizing forces in crypto more broadly? And how do you think kind of those things play together?

Yeah, I mean, that's kind of the irony, right? Is like, there will be a way in which like, this will be massively centralizing in terms of standardizing data, I think. But what's strange about this is like, you know, aggregation will probably be really powerful, right? Aggregating liquidity, but also being able to aggregate like, All of the data in a single place with a firmly accepted standard for contributor profiles and data will be really important for, at the very least, for everyone else to be able to build on top of too. So yeah, there will be this way, it's not quite centralizing necessarily, but it's standardizing, right? To create these, at least central standards, right? To operate off of. I think that, but again, what's crazy about this is AI will probably invent most of these standards. Like, it'll be AI that is like coming along and saying, okay, here's how we decided to catalog, you know, the, the, um, you know, these different pieces of content to show the similarities between them so that we can group them together. But, you know, the hope there also with AI and, and with crypto is that it can be more malleable. Like, if someone is putting in a query for a really particular site of commonalities, AI will be able to find that commonality even though no one has done it before. And so there might be a way for people to like find new commonalities and, and in a way that they're not stuck within, you know, a very limited framework of saying you can only search by these 4 criteria, these 4 variables.

Yeah, that's fascinating.

You must be thinking about this a lot, Zach, and what you're doing.

Yeah, I, I definitely am thinking about it a lot. I don't have any fully fleshed out opinions on it yet, but it's, it's definitely a pressing force in my mind and something I think about a lot in terms of You know, there are centralizing forces or standardizing forces, which I think is a better term, and I'm going to start using.

Yeah.

And then there's decentralizing forces and the strong human nature of wanting to band together with people of a similar niche of some kind. And I think when you put those 2 things together, you get a lot of unintended consequences that I'm having trouble, you know, putting into words. But that's what's so interesting to me.

I think Danny from Ceramic had a really good way of putting this where he's like, look, on the one hand, if you have centralization, you have these core leaders who everyone believes and trusts as experts. That obviously dissipated over the past 10 years, rise of populist politics, user-generated content, right? All of that has led to decentralization. But the problem is we don't know who to trust because we don't have coordination systems. So we're just trusting whatever we see on the internet. And whoever is there. And it's like, you know, we've gone from realizing the experts are wrong and that we can't trust them and they're lying to us to turning to people who like have no credibility whatsoever. And so like, you know, you really need both. Like, you need decentralization. You need to be able to say a lot of the people who really have expertise are people on the ground who are not just people who went to Ivy League schools because they were rich or whatever. You know, like, they really are the people who like can actually have lived experience and have dealt with these things. And, you know, And that's important. At the same time, you can't just trust anecdotal data as a basis for your beliefs. So decentralization is important if you have coordination systems for those communities to coordinate together and coordinate truth, right? And what's really missing is that coordination piece. So standardization, I think, is actually massively important. Having a single chain as a source of truth is like, limiting, but it's also really valuable, right? If there's a single place where all of these transactions are settling to, where they can all then draw on each other, to use the crypto analogy. But I think, yeah, within our systems as well, being able to have better ways of discerning what is true and who to trust is also really important if we're going to move towards a world of decentralization. And crypto deals with this every day. Crypto is like, yeah, we're creating a trustless system, and then where does it go wrong? Every time we try to trust somebody. Which makes perfect sense. If you created a trustless system, of course, it's going to fail when you have to trust people. But like, you know, every time we have to trust anybody in crypto, it goes very, very wrong. Because we haven't created these really good standards for arbitrating truth, I think.

Yeah, that's a really good point. It seems like there's a lot of these tensions in crypto where there's a force pulling one direction and a counterbalancing force in the other. And one of those that you talk a lot about is, is this idea that, you know, one of the affordances of smart contracts and crypto more broadly is the ability to take royalties on anything in perpetuity. And at the same time, because those smart contracts are open source, anybody can fork them, institute a cheaper fee, and then you get a race to the bottom on fees, which arguably means that, you know, monetizing smart contracts via fees is not the way to go. How do you think about this, these 2 forces at play with one another and the idea of like kind of Web3 moats?

Yeah, yeah. So I think like being able to set royalties is like huge. And we've talked about it being this big thing within crypto in the sense that like, you know, artists now get a cut of the resale. And that's like, that's true. But I think royalties are much bigger than that. Because like what royalties do is they decouple Creation from distribution. So like if you can automatically set a royalty anytime anyone uses your work, if you're like a DJ or you're like, you know, you created a beat and anytime a DJ remixes it, you get a cut, right? Or, you know, you put out an article and anytime anyone quotes it and makes money off of it, you get a cut, right? Or you created a sweatshirt and like anytime anyone sells it, you get a cut. You decoupled creation from distribution, right? Where it's like, now anyone who's recreating it or just selling it directly will give you a cut. But it also means that anyone can recreate it or remix it and distribute it and sell it as well. So like, you're no longer responsible for that piece because anyone can set up a shop, anyone can remix your work, and you should be able to get a cut for it, right? And like, that's, I think, really powerful. Like, you know, we— it's like creators have been vertically integrated on the internet, like You're responsible for creating your own shop for your own goods on Etsy or Shopify, right? I think like royalties allow you to kind of decouple that and break that up in a way which is really powerful for distribution. And it's important to remember remixing is also a form of distribution too. Like TikTok has taught us this, right? Someone like does a duet, like they're also distributing your work. So I think this is really powerful, but the problem is like provenance. Like how do you know, you know, who the original creator was and how to ensure they're getting a cut when you could just fork that smart contract and cut them out. And there's some sort of honesty system in place here, but I think that's again where AI becomes really powerful because AI, if you upload your content on Arweave with a cut enabled and AI can tell where the provenance was, right? Of who originally created this work, then it can probably also attribute royalties so that if someone came along later and distorted it or remixed it or changed it without the royalties, AI could probably say, fuck you, you know what, you don't get anything, and actually you're going to get slashed. So you could also create other tools for Agilayer kind of systems of opting in to back the AI system, and AI slashes people who are being dishonest actors within this system. I think there will be solutions for this, but they're probably years away. It's going to be a while for that to happen. And I mean, look, What I'm talking about is like this cool vision of AI establishing who created the original beat for, you know, like, and then paying them out. It's like, dude, we live in a world right now where it's like, if you wanted to sell a sweatshirt in crypto, you can't do it. It's 2022. I tried doing this last week. It's like, you know, if you just want to be able to set it up to like sell, sell your sweatshirts online and like have a cut go to the creator of that, you can't do it. It's way too complex for the world we live in. So like, there's, you know, some rails that we need to establish first for all of this stuff. But like, I do think the solutions are out there. They're just going to take a while to implement.

Yeah, I kind of want to go back to the railways conversation earlier because you wrote this really great post about the railway bubbles, which I didn't even realize there was one, much less two of the 1800s. and kind of the connection to crypto. And I thought it was really amazing, really amazing article. And I definitely recommend people go read it.

Thank you.

I'm kind of curious. Yeah. What prompted that article or that blog post for you? And yeah, if you could summarize it just kind of briefly.

Yeah, this is, I mean, it comes out of Carlota Perez's work, which I've been kind of obsessed with for a while. I wrote a bunch on it last year and then finally returned to it this year. And part of her point is that you have these bubbles over and over again of inflated expectations about technology where investors get so excited by this transformative technology, they pour all their money into it, and then the bubble collapses because the technology just isn't really ready yet. And part of her point is to say, yeah, we tend to think bubbles are tulips or something, and we make fun of bubbles for being like, These crazed mobs going after whatever speculative possibility they can pursue. But that's not really what bubbles are. Bubbles actually tend to correspond to really transformative technologies. Bubbles tend to correlate to game changers in the industry. And it's just like, the issue is just that they put in more money than they can get back out fundamentally. And so the issue isn't the technology itself. the issue is the valuation, if that makes sense. And this is kind of like her argument. And so I was trying to extrapolate that to railroads and where we are now. And I think like it's been this interesting thing in investing in the past couple years because you could fundamentally like bet on hype and make a lot of money, at least on paper, right?

Yeah.

And it's like even though the valuations were so crazy, like people, they would still get even crazier. And so it's just like, it was a question of like, when would this pop, right? But like, when you're seeing that as an investor, you're like, yeah, maybe this doesn't make sense mathematically. But on the other hand, if I know that this is just continually self-fulfilling cycle of like valuations going up and up, I don't want to miss out on that either. It's like, even if you're a skeptic, you don't have to be part of the mob mentality. You don't have to be like, you know, totally convinced these valuations make sense. You could just be very pragmatic and still participate in a bubble to say like, bubbles are actually the best time to make money. Like, You just have a bunch of dumb money pouring in and I can make money off of that, especially if I can get secondaries. And so I think the interesting question now is, well, it's twofold. And one is, can we get more money out than we've put in? Like if the big funds in crypto have put in like $3, $4 billion or putting in $3 or $4 billion, like let's say they're taking 10% of a company. So effectively they're like, that's $40 billion each, you know, of like valuation. I don't know how much total money there is in the crypto ecosystem, but like, let's say there's like at least $10 billion being deployed. Like, so you're saying at least $100 billion of value needs to be there in the, in the crypto ecosystem, right? Um, for you to have 0% returns. And it's like, you know, is there a risk, right? First of all, that that value isn't there. We've put in all this money, and even though crypto is transformative and game-changing and amazing, It also is reducing cost of service tremendously, doesn't have recurring revenue, might not be massively money-making, and actually might end up at cheaper valuations, especially as interest rates go up, right? Than like previous services. So like, will you be able to get your money out is the first question. And the second question is, did because these things are all psychological, because a pragmatist investor might say, I'm going to put into a bubble because everyone else is putting in a bubble. I might say I might not deploy because I know that no one else is deploying. Like, did did the rush to invest in crypto actually really hurt crypto? Like, like did putting all of this money in create a bubble that then had to pop, that then had to lead to a total loss of confidence in the entire space that could set us back for years? And so, like, could the people who saw that crypto is transformative be totally right about that bet? Make the right bet at an early point on a game-changing technology actually hurt. the same thing that they're betting on and be right at the same time. Like, and I think that that's the interesting thing with the railroads is like, it really shows you, you can be so right and so early and that not only you lose, but you cause your own industry to lose as well.

Yeah.

And I think that's kind of the question that we're facing right now for crypto, which is like, you know, how much have these really well-intentioned, you know, like builders, investors, like actually set us back? Obviously SBF has set us back. Obviously the frauds, the hackers, the shit regulators have all set us back. But how much do the people who really believed in the space and were right about it, have they also set us back? And I think that's the interesting question for me.

I think there was one thing that I saw in the post though that you're not saying here that I think is interesting is basically the software is eating the world thesis where You said, but if there's one lesson of railway mania, it's that when you kill a thing you love, you don't really kill it at all. You die as an investor for your mistakes, but the technology does what it's intended to. It gives no shit about you. It moves on and eventually it wins. How do you think that jives with any sort of investors who are investing today?

Yeah, I mean, I believe crypto is going to win, like 100% believe this. I might be wrong, you know, I'm often wrong, but like, I really, I really believe that. I think the question is, do the investors in crypto win?

Yeah.

And some will, and some will bounce back. And, you know, some also just have like, you know, enough legitimacy and reputation they've built up for years to be able to weather it no matter what. And some will make money off of this too because they've been really conservative. But there's a decent chance that a lot of really great investors are going to go down in this thing. A lot of really great funds are going to go down in this thing for being right. And time will prove that they're right because crypto will ultimately win. But it's going to be a hard truth to sit there 10 years from now and be like, we were the ones who took the risk. We took a risk when no one else believed in this. And meanwhile, all the people sat on the sidelines ended up being the ones who made the money and not us who actually believed in it. So I'm not saying 100% certainty this is How things will play out. I think a lot of funds will be fine. I think they'll be able to weather it, but a lot won't. And it's going to be interesting to see who continues to fall over the next year as well. Like simple math, right? There's just like, you know, almost every fund had at least one company that was keeping money in FTX, but they were keeping like what, like maybe 80% of their money in FTX, not 100%. So they still have runway, but they have runway for like what, another 3, 6 months? And then what? Like, then they might start going under. So it's like the contagion from this thing could just spread and spread, and then those funds have to mark them down, right? And then that just changes their ability to get returns as well when they had great companies that just went broke because of a banking mistake. So like, I'm personally expecting this thing to play out for a while, but I'm not an expert on these things and I'm often wrong.

Totally. Totally. Well, this has been an incredibly wide-ranging conversation. David, thanks so much for taking the time. Where can people find you on the internet? Where can they read your writing, follow you on Twitter? What's all the good stuff that they should follow you on?

Yeah, davidphelps.substack.com. That's where I put the good words. @divine_economy on Twitter. That's where I put the bad words. So yeah, you can pick which one you want. Awesome.

Well, thank you so, so much, David. This is great. And to everybody listening, go give David a follow, read his work. It is amazing, amazing stuff. And until next time, we will see you later.

This is a blast. Thank you, guys.