November 30, 2022

niagaraonthemap

Simply Consistent

How Web 3 Changes Philanthropy

Don’t miss CoinDesk’s Consensus 2022, the must-attend crypto & blockchain festival experience of the year in Austin, TX this June 9-12.

Ten years ago, the rebels hadn’t won. There was no Web 3. No non-fungible tokens (NFTs), no decentralized finance (DeFi), no decentralized autonomous organizations (DAOs). No Coinbase, no Ethereum, no a16z Crypto.

Now, in 2022, we have all of these things.

Elon Musk pitches dogecoin on Twitter. The Miami Heat shoot hoops in the FTX Arena. Matt Damon shills crypto to millions during the Super Bowl.

Rhys Lindmark is CEO and co-founder at Roote, a nonprofit startup studio tackling problems with systems-level design. He will present a version of this essay on the “Big Ideas” stage at CoinDesk’s Consensus festival, which runs June 9-12 in Austin, Texas. Learn more.

Now our feeds are full of NFT profile pictures, there are tokens worth $100 billion staked across dozens of DeFi ecosystems, and DAOs (almost) buy constitutions and Parisian art. Meanwhile, FTX chief Sam Bankman-Fried casually becomes President Joe Biden’s second-largest donor.

Web 3 is the biggest wealth creation event in history. The crypto rebels have won.

But we’re only 10 years in. What will happen in 2040? What does this mean for society? What does this mean for philanthropy?

To understand what will happen in 2040, we will look at three angles:

  1. Past: Web 3 in the history of wealth creation events.

  2. Present: How crypto whales are leveraging their wealth today.

  3. Future: Decentralized solarpunk society.

Past: Web 3 in the history of wealth creation events

A decade ago, crypto billionaires didn’t exist. Now there are dozens of them, with Twitter-optimized acronyms, such as “SBF” for Sam Bankman-Fried and “CZ” for Binance CEO Changpeng Zhao.

We’ve seen this before. The old rich give way to the new rich. Emperors like Ghengis Khan and Caesar used to control all wealth.

Then the Industrial Revolution birthed billionaire oil magnates like John D. Rockefeller and steel magnates like Andrew Carnegie.

Read more: Anonymous Crypto Donors Are Changing Philanthropy

Computers and Web 1 birthed billionaires like Bill Gates and Michael Dell. Web 2 created the elite of today: Jeff Bezos, Steve Jobs, Mark Zuckerberg, Sergey Brin and Larry Page. And now, Web 3 has created SBF and CZ.

But are these crypto billionaires like SBF and CZ just a flash in the pan? Or are they forerunners of an impending wave of wealth creation?

1. How people get rich now

In April 2021, Paul Graham wrote an essay, “How People Get Rich Now.” By looking at the Forbes top 100 richest people, Graham shows how wealth creation has shifted over the past century from Industrial Tech to Inheritance and now to Digital Tech.

First, Graham shows how wealth shifted from Industrial Tech (in 1892) to Inheritance (in 1982).

In 1892, the New York Herald Tribune compiled a list of all the millionaires in America. How many had inherited their wealth then? Only about 20%. Instead, economist Hugh Rockoff found that “many of the richest … gained their initial edge from the new technology of mass production.”

Also in this series: Matt Prewitt: Let’s Use New Forms of Money to Commit to Our Communities

But by 1982, the most common source of wealth was inheritance. Of the 100 richest people, 60 inherited it from an ancestor. There were 10 du Pont heirs alone.

We can visualize this on the simple graph below to show how wealth became more inherited over the course of the 20th century.

(Rhys Lindmark/CoinDesk)

(Rhys Lindmark/CoinDesk)

This led to the rise of Investing and Digital Tech. Paul Graham again: By 2020, the number of heirs had been cut in half, accounting for only 27 of the biggest 100 fortunes.

Of the 73 new fortunes in 2020, 30 derive from Digital Technology, 26 from Industrial Technology and 17 from investing.

(Rhys Lindmark/CoinDesk)

(Rhys Lindmark/CoinDesk)

What about crypto, the intersection of Digital Technology and Investing?

Graham didn’t look at crypto in 2021, but by 2022 we now have two crypto billionaires in the top 100: SBF and CZ.

The graph has a new player in town, crypto (in orange at the top).

(Rhys Lindmark/CoinDesk)

(Rhys Lindmark/CoinDesk)

It may not seem like much, but rarely do we find an entirely new category for how the wealthiest people create their wealth.

More importantly, is this a trend? Will the graph soon be covered in orange?

2. How many crypto billionaires will there be?

Serial entrepreneur, investor and influential essayist Balaji Srinivasan and Polychain Capital founder and CEO Olaf Carlson-Wee estimate that:

That’s a massive shift in who controls wealth. Does it hold up? We can do some napkin math to find out.

How many billionaires are there? There were only 15 billionaires in 1982, but there are now 2,668, and we’d expect that number to rise to around 3,300 by 2025.

(Rhys Lindmark/CoinDesk)

(Rhys Lindmark/CoinDesk)

But how many crypto billionaires are there?

Given crypto’s volatility and pseudonymous nature, this is a difficult question to pin down.

For simplicity, let’s use Forbes’ estimate of 19 crypto billionaires.

So our graph actually looks like this:

Again, this new crypto blip is pretty small. Right now only 1% of billionaires are crypto billionaires (19/2,668).

However, this is something categorically different. The real question is: What’s the trendline? Will orange crypto take over the chart?

More napkin math: As I write this, bitcoin (BTC) is at $30,000. What happens if, by 2025, BTC goes to $200,000, and the rest of crypto rises with it? This would give you roughly 400 BTC billionaires, 200 ether (ETH) billionaires, and 200 other billionaires.

With 800 new crypto billionaires, we’d get a graph like this:

This would make the 800 crypto billionaires around 20% of the total. With this rough napkin math, I disagree with Srinivasan and Carlson-Wee that $200,000 BTC makes 50% of billionaires crypto billionaires. I think it’s more like 20%. Still, 20% is a huge increase. And $200,000 BTC is not unlikely.

Coming back to Graham’s article, we could expect the graph to look something like this:

(Rhys Lindmark/CoinDesk)

(Rhys Lindmark/CoinDesk)

That’s a huge change! The orange number goes way up.

Finally, all of the math above doesn’t even include the long tail of wealth creation.

BTC mining created thousands of millionaires. The ETH initial coin offering (ICO) created thousands more. DeFi created thousands of degen millionaires too.

No matter how you do the math, Web 3 is a huge wealth creation event. How will the nouveau riche leverage it?

We all know the famous quote (misattributed to Gandhi):

First they ignore you, then they laugh at you, then they fight you, then you win.

There’s a version of this but for digital technology in Web 2 and Web 3:

  • First they ignore your protocols. From TCP/IP to ERC-20 and ERC-721.

  • Then they laugh at your Super Bowl ads. From Pets.com to Crypto.com.

  • Then they fight your influence. From the U.S. banning file sharing to China banning bitcoin mining.

  • Then you win … and get a crappy government implementation from Healthcare.gov to “GovCoin Coming Soon.”

Another framework of technology adoption is Carlota Perez’s S-Curve. All tech goes from the Installation Period to the Deployment Period.

Web 3 is still in the Installation Period. How is it impacting society today?

We can break this up into three categories:

  1. Value creation: The direct impacts of Web 3.

  2. Excess capital: philanthropy and Web 3.

  3. #SquadWealth: collaborative ecosystems in Web 3.

1. Value creation: The direct impacts of Web 3

First, we can understand Web 2 impacts by looking at tech company mission statements:

  • Microsoft: A computer on every desk and in every home.

  • Google: To organize the world’s information and make it universally accessible and useful.

  • Facebook: To make the world more open and connected.

  • Amazon: Where customers can find and discover anything they might want to buy online.

But in Web 3, mission statements are focused on money instead of information:

  • Coinbase: To increase economic freedom in the world.

  • OpenSea: Building an open digital economy.

  • FTX: A cryptocurrency exchange built by traders, for traders.

The direct impacts of Web 3 will be a digital economy, open to the entire world.

2. Excess capital: Philanthropy and Web 3

Web 2 birthed a set of “traditional” foundations like:

  • Bill and Melinda Gates Foundation.

  • Schmidt Futures.

  • Chan-Zuckerberg Initiative.

  • MacKenzie Scott Foundation.

  • Open Philanthropy.

Web 3 is going a bit weirder.

Brian Armstrong is funding $100M for longevity research.

SBF kickstarted the FTX Future Fund, which doubled the amount of money focused on longtermism. (See graph below.) He’s also given $10M+ to Carrick Flynn, an effective altruist political candidate from Oregon. (This is 3x the donations of any other House candidate.)

(Rhys Lindmark/CoinDesk)

(Rhys Lindmark/CoinDesk)

3. #SquadWealth: Collaborative ecosystems in Web 3

Finally, we can look at the long tail of wealth creation.

In Web 2, this primarily manifested as AngelList syndicates and angel investor networks. Groups of early employees who exit with tens of millions of dollars invest that money back into tech.

In Web 3, this goes even further. Every round is a community round, with NFT degens and crypto VCs aping in together. This will be supercharged with the Web 3-native version of syndicates, Syndicate DAO – here’s a link to the first 100 investors. Crypto fundraising is community fundraising.

Read more: How Crypto Is Changing Philanthropy

But we also have a fully new form of community fundraising that is built on abundance, impact DAOs. These are collaborative networks that have positive externalities built-in.

Gitcoin Grants give back to the open-source community. KlimaDAO gives back to the environment. #DeSci gives back to fund new science research.

I like to think of these as DAOs that succeed in the presence of other DAOs, that also succeed in the presence of them. Here’s a map of the impact DAO space from Gitcoin and FiftyYearsVC.

People give back to fund crypto infrastructure through Gitcoin Grants. And then those grantors are rewarded later with retroactive public goods funding.

(Rhys Lindmark/CoinDesk)

(Rhys Lindmark/CoinDesk)

In Web 3, we’re seeing the huge impacts of crypto wealth through direct company impacts, philanthropic initiatives and new forms of #SquadWealth.

What will happen in 2040?

We can project these three trends into the future to understand a decentralized solarpunk society (#DeSoc).

  1. Value Creation: the direct impacts of Web 3.

  2. Excess Capital: philanthropy and Web 3.

  3. #SquadWealth: collaborative Ecosystems in Web 3.

The ideas below are speculative, but should give us a rough sketch for where we’re headed.

1. Value creation: The direct impacts of Web 3

Software is eating the world.

Web 2 started by eating bits then moved to atoms.

Web 3 will finish eating bits then move to atoms too.

  • Meatspace and the metaverse will be fully intertwined with internet and blockchain protocols.

  • Just as the Enlightenment separated church and state, crypto will separate money and the state.

  • Every community will have a currency.

  • Every person will have a Soul (a far-reaching identity token idea) and every Soul will work in trusted networks.

  • The Network State will form in the cloud, then will push down into every acre of land.

2. Excess capital: Philanthropy and Web 3

  • In addition to Coinbase Giving and FTX Future Fund, there will be dozens of massive Web 3 foundations that give in a bottom-up way.

  • These foundations will take the form of what Nadia Asparouhova calls idea machines, funded organisms that turn ideologies into outcomes.

3. #SquadWealth: Collaborative ecosystems in Web 3

  • In 1976, Vanguard gave retail investors access to the stock market index. Now we have new indices on crypto like the Coinbase 10, DeFi Pulse, DeFi Innovation and NFT Index. Through indices like these, the public will collaboratively own and benefit from Web 3 (and AI) wealth creation.

  • There will be a clear risk-adjusted investment ladder for public goods projects, like VC is an investment ladder for startups. We will have seed, Series A, Series B, etc. but for nonprofit public goods. Donors will be repaid through retroactive public goods funding.

  • Company mergers and acquisitions will phase out in favor of DAO token swaps and shared liquidity pools. The ecosystem of DAOs will rise and fall together as a complex adaptive system.

Software is eating the world. Crypto accelerates that process.

By 2040, Web 3 will be the water we swim in – full of crypto whales, millionaire minnows and the rest of us small krill.

Let’s make the water (and the land!) nourishing and balanced.