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Hi, I'm Jim O'Shaughnessy and welcome to Infinite Loops.
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Sometimes we get caught up in what feel like infinite loops when trying to figure things out.
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Markets go up and down, research is presented and then refuted, and we find ourselves right back where we started.
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The goal of this podcast is to learn how we can reset our thinking on issues that hopefully leaves us with a better understanding as to why we think the way we think and how we might be able to change that to avoid going in infinite loops of thought.
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We hope to offer our listeners a fresh perspective on a variety of issues and look at them through a multifaceted lens — including history, philosophy, art, science, linguistics, and yes, also through quantitative analysis.
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And through these discussions help you not only become a better investor, but also become a more nuanced thinker.
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With each episode we hope to bring you along with us as we learn together.
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Thanks for joining us, now please enjoy this episode of Infinite Loops.
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Disclaimer: Jim O'Shaughnessy is chairman and Co-Chief Investment Officer of O'Shaughnessy Asset Management, where Jamie Catherwood is an associate.
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All opinions expressed by Jim, Jamie and podcast guests are solely their own opinions and do not reflect the opinions of O'Shaughnessy Asset Management.
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This podcast is for informational purposes only, and should not be relied upon as a basis for investment decisions.
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Clients of O'Shaughnessy Asset Management may maintain positions in the securities discussed in this podcast.
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Jim O'Shaughnessy: Well, hello everyone.
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It's Jim O'Shaughnessy with another addition of Infinite Loops for this edition, I have who I named my first recurring guest.
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Alex Danco who never recurs.
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Hey, there, are you actually Alex Danco?
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Alex Danco: First recurrence of 2022.
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Jim O'Shaughnessy: Yes, indeed.
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Alex Danco: It's in the books. How are you, Jim?
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Jim O'Shaughnessy: I'm well, how are you?
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Alex Danco: I'm doing really well.
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It's really good to be back.
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Jim O'Shaughnessy: Yeah, it's great to have you.
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Alex Danco: I've been looking forward to this for hours.
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Jim O'Shaughnessy: Me too.
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Minutes, minutes, I was looking forward to this.
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So for those listening, we basically did a pretty cool podcast before we started recording.
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And I don't know, you think we've got anything left, Alex, or have we solved all the world's problems?
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Alex Danco: We talked about all of the forbidden topics that we can't talk about in this episode for world reasons.
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And now we're going to gossip, we're going to talk about what you can and can't wear this season.
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We're going to talk about...
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What else are we going to talk about?
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We're going to talk about, have you seen Hareno? God, it's horrendous.
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How do they allow that in this neighborhood?
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Jim O'Shaughnessy: It's uncontainable.
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My son was saying to me that he loves our podcast.
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He goes, "What I love the most though is in the original ones, you would say, "Hey, Alex and me are going to talk about this and this and this."
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And he goes, "And then I know those are the things that you expressly will not talk about during the podcast."
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Alex Danco: See, when I go on his podcast, he just edits it all in posts, so we end up saying what I'm supposed to say.
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Jim O'Shaughnessy: I know. I know.
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Alex Danco: It's production value for you.
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Jim O'Shaughnessy: Well, exactly.
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And it's like I am doing it because of all the emergent things, that's the other thing I told you.
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I went back and I reread our transcripts, and my thesis was to monkey-like hominids talking to one another.
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And no, it's actually complex adaptive systems emergence.
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Oh my God, we're going to do a book, all of the proceeds to you, so you can escape Canada with real money.
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Alex Danco: That's right.
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They haven't frozen my Ledger wallet yet, we're going to get a knock on the door in two weeks.
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Jim O'Shaughnessy: It's just say so un- Alex Danco: Rifle through all my desk drawers looking for USB key-like items.
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Jim O'Shaughnessy: It is so un-Canadian.
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I mean, like I would've lost all those things.
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Alex Danco: Jim, is it un-Canadian?
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Jim O'Shaughnessy: I think so.
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Alex Danco: Is it un-Canadian? Let's debate.
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Here's topic number one, I would actually love to kick up about this.
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Jim O'Shaughnessy: Let's do it.
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Alex Danco: So Jim, I have context here for listeners who may have somehow missed this new story.
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Over the past month and a half in Canada, there's been some protests from our trucker friends who are upset about vaccine mandates and other mandates and various consequences of the pandemic and other things affectionately called the flu trucks clan by people up here, love them or hate them either way, what essentially went down was as follows.
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If a two-year-old throws a big giant tantrum and then their parent responds by locking them in a car for three hours. What's the story here?
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Is the story, two-year-old throws a tantrum?
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No, that's not the story.
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The story was that the parents freaked out a little bit and waited and waited and waited and then freaked out a whole lot.
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And then suddenly this became a big whole American news story of Canada passes this emergency act.
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And then all of a sudden they can freeze your bank accounts and they can take trucker money from going through GoFundMe campaigns and they can do all these things without needing to go through courts.
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And they can just do whatever they like and deputies financial institutions to go police people they don't like.
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And this became this massive story, massive, massive, massive.
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And to be honest, I don't know how many people this actually happened to.
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It is now supposedly order.
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But, boy, is this an example of the being worse than the original content?
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The reaction is the entire story here, and then the reaction to the reaction is now the story.
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And I have to ask you, okay, what did you hear about this down in the states and what was the impression of it?
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Because to be honest, that's most- Jim O'Shaughnessy: Oh, that's really interesting. Alex Danco: Yeah.
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What did you hear happened?
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Jim O'Shaughnessy: So the challenge that I have is, as you know, I do business up there, I've been a partner of RBC for 25 years.
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So I have a bunch of Canadian alerts on my Google alerts that many other Americans don't have.
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So I'm seeing it more than your average American, but here is what I can tell you from listening to other people, "Hey, you do business is up in Canada, right?" "Yeah." "Okay.
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So explain this whole thing to me." I'm like, "Well."
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Alex Danco: You're accountable for this, explain yourself.
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Jim O'Shaughnessy: Here, Mr.
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Anti-authoritarian, why are they letting that go?
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Alex Danco: But you loved America.
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Jim O'Shaughnessy: So I think what happened here was first the news media was sort of interested in the whole trucker thing.
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And so you'd see a story, not front page, not top of the list if you're at Google news, but it would be there though.
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Then you pass the emergency act and all hell breaks loose.
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And it's basically, the story is told to Americans is what I just said to you on the opening, fucking Canadians are acting like completely non-Canadian way of doing things.
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But, and then in all seriousness, I got serious calls from people who are global allocators.
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And they're like, "Are you going to ding them for this law?"
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And I said, "Let it play out. Let's see what goes on."
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But it seems to me, so now the popular press, which by ipso facto is almost always wrong, they loved the story because of as you put it, the tantrum happened, but then the adults didn't really act appropriately for the way that the adults should have acted.
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And I think that just in general, when people hear freezing bank accounts seizing assets without the court's approval, at least your average American is like, "What the fuck?"
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Alex Danco: This is why we own guns.
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Well, it's not that too much of a stretch to suggest that is to some degree, the whole idea of you wouldn't dare do that in the United States because, and honestly just leaving it at because is usually more effective than actually specifying anything further.
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Jim O'Shaughnessy: Totally true, totally true.
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And it's like because- Alex Danco: Because. Jim O'Shaughnessy: ...
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however, I often will say to anyone who wants advice, "Don't taunt the feds here in the US, it's a losing proposition."
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And then I always give as my statistic, the department of education has 100,000 attack rifles, what the fuck?
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So in all seriousness, it's like the people I heard most from were allocators and they were like, "Is this going to really ding them for good?"
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And I'm like, "We got to wait and see how it plays out." But...
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Alex Danco: This is allocators asking what? Is Canada still ESG?
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Am I going to get dinged on my... Which one is that?
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Is that S or is it G, or is it E?
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Jim O'Shaughnessy: It's the tri factor, my friend.
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Alex Danco: Which one is it?
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Jim O'Shaughnessy: It's all of them. It's all of them.
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Alex Danco: I need to ask Mark Franklin, who's the CEO of the CFA Institute, is my neighbor.
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She lives up here in Toronto, I need to ask her.
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She's probably the ultimate authority on this because she's ultimately going to govern what goes into the level two exam over whether Canada is retrospectively ESG according to the exam they have to write.
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Jim O'Shaughnessy: So, well, I mean the thing that I predictably hate is capricious actions by federal authorities who have a ton of power, generally not something I like to see happening.
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And I think that in all seriousness, we can leave it at they'd never do this in America because, but I'd kind of throw the constitutional Republic and bill of rights in there and the guns.
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Alex Danco: I think a big part of the mindset up here is that you really cannot separate a lot of both the action and the reaction from a lot of the...
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I don't want to call it the cult to personality, because that's the wrong word, but sort of the myth and the legend of Justin Trudeau and the whole concept of Justin Trudeau and what he even is.
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Which is like, well, who is this guy?
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It's like, well, he is this guy who was a snowboard instructor and then he was a teacher and then he was prime minister, but he's a Trudeau.
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And that for a period of time, there was I think a really legitimate thesis to be made though.
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That's kind of actually what you want in a parliamentary system in the sense it's like it's not really the PM who's making a lot of these decisions, but they're the source of sort of absolute authority in the sense that other people cannot run to be a Trudeau, you can't, it's not really a meritocracy here, and he's more like the queen than a traditionally elected prime minister in the sense that if you're a Trudeau, you are Canadian royalty.
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But nonetheless it's like from the very beginning, having Justin Trudeau come in and become prime minister necessarily bookends a between the Trudeau's period that was sort of started at the famous Pierre Trudeau line, "Just watch me."
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Kind of in the October crisis and sort of memorializing this idea of him cementing his spot as one of the dynastic forever Canadian PMs.
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And it basically established, okay, there will therefore be another bookend moment like this that signals the exact reverse process, it's an only it's checkoffs law, but for Canadian moments.
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And so it did, and so it did.
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Jim O'Shaughnessy: And for our charters out there, which I am not one, but I do know a little, a bit about it that the charters have this idea that a gap up or down always get filled.
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Alex Danco: Oh my God, when you said charters, I was thinking, okay, charter is clearly something to do with the royal charter.
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Is that like a monarchist, are those like Queen Elizabeth is the legit?
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And then it's like, oh, that kind of charter.
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Jim O'Shaughnessy: Oh yeah.
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Well, the one thing that we do not have for the most part in the United States are Monarchists.
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Alex Danco: I don't know.
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I feel like the MAGA movement was kind of monarchist, wasn't it?
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Jim O'Shaughnessy: Oh, monarchist, only in the most Trudeau-ish.
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Alex Danco: King Trump and the Royal Family.
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And that's kind of monarchist, it's not not monarchist.
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It is a monarchy-like theory of power.
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Jim O'Shaughnessy: Yeah, I got to let you go here.
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Alex Danco: Well, this is going to get me.
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This is going to get me canceled.
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I see what you're doing, you're trying to get me canceled. I decline today.
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Jim O'Shaughnessy: In our first conversation, the thing that everyone loved the most as far as the feedback I got was, you and me talking about your whole aim to be good at Twitter is to not be it on Twitter.
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Alex Danco: That's right.
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Every day on Twitter there's one main character.
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Jim O'Shaughnessy: And you don't want it to not be you.
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Alex Danco: Is to not be it. That's right.
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Jim O'Shaughnessy: So one of the things we were talking about, and I want to get your views on, because I'm actually pretty favorably disposed to where these things might go is this idea of NFTs.
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So I'm an old, and so rather than try to do all the studying and everything, I thought, well, you know what?
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I think if I really want to understand this, I should make one.
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And so that's exactly what we did.
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And we made it with a benefit that only that NFT unlocks.
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I think that's an important part of if you're going to get this I could be wrong.
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Alex Danco: I want to talk to you about this, this is going to be really interesting. Jim O'Shaughnessy: Yeah.
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So long story short, hired an artist, we did what was very colorful, I thought quite lovely.
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But the thing that was contained in the NFT that you could unlock was, you could either become a guest or co-host, Infinite Loops.
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So we put it out there on Opensea, I guess and we put a clock on it only seven days.
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My guys were watching it, as you probably know all my colleagues at Infinite Loops, except for Jamie are in India or Romania.
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And so one Ethereum just tiny, just little moves, and then the last half hour jumps to nine Ethereum, which is likes- Alex Danco: That's a lot of money. Jim O'Shaughnessy: ... 40 grand.
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But then this is what I love to about it, because what emerges is this completely unplanned, but incredibly powerful in my opinion and virtuous flywheel.
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So the guy who bought it is a very successful software developer and he bought it not for himself, but rather because he had many opportunities in his life where people gave him a leg up, and they didn't have to, they did it without him asking, and so it's kind of this idea of pay it forward.
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And he said, "So I don't want to be on, but I want to nominate someone and don't want to give too much away.
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But the gentle that is joining us, I mean, literally, you could make a movie about his life.
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He overcame massive amounts of hardship to go to Annapolis, graduated Annapolis, went to medical school, breached both President Obama, President Bush and is now a surgeon.
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And then I wanted to also give the money, whatever we raised to charity.
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And so I said to my colleagues, "I want you guys to pick."
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And so Vizi, who is in Transylvania had a charity that he very much wanted to affect, and it was essentially young people rebuilding Romanian landmarks that the communist regime either let go to pot and/or actively tried to bring down.
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Alex Danco: Cool, that's really neat.
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Jim O'Shaughnessy: Yeah, it is neat.
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But I want your take first off on just the concept of NFTs and then what you think about where they might end up. Alex Danco: Yeah. Okay. So before we go into...
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I can give you my whole general spiel about what I think these are all for and what they're really here to do.
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I want to sort of make a comment about your specific implementation of using an NFT to do this thing, which, one, I love, this is awesome, what a great idea?
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Two, no aspects of that that you did could not have been done utterly convention.
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You could have done an auction and then you could have raffled off this thing and then the winner of the raffle could have said, "Actually I nominate this other young fellow to come on the podcast."
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And then you could have donated that money in regular Petrodollars to go rebuild his monuments.
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None of this in isolation required any of this.
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Jim O'Shaughnessy: That's correct.
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Alex Danco: But it did happen and you did choose it, and that's what's interesting.
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The counterfactual of ooh, but a database is a little bit beside the point.
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And I would like to come around eventually at the end of this spiel to hit home the point of why this in fact did happen.
18:36
But to back up, I think, let me give you sort of a little spiel about why I am so interested in this stuff.
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So, first of all, you know this, we've talked about this on previous shows, but pre being a Shopify, pre-working in VC, pre any of this stuff, I was in a band.
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I was in a band called The Fundamentals, we were on a punk sky label out of Montreal, we toured around a bit, we had a great time.
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We tried to go make it, we didn't make it big, but artifacts of our band are still around, you can listen to us on Spotify and I'll make a fraction of a penny.
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We still exist in some sort of digital ghost form, but when you're touring around as a musician, the way that you...
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Let me ask you this, Jim, what is your business model as a musician?
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It's very simple, do you know what it is?
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Jim O'Shaughnessy: I know what mine would be.
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Mine would be, I would earn all my money from concerts and paraphernalia.
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Alex Danco: Yeah, it's t-shirts, you're in the t-shirt business.
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As a musician, you are in the apparel business, that is what you do.
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You lose money making music, and then you barely break even playing shows and making door money, if you're getting any bit from the promoter.
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And you lose money selling CDs, but then you make money selling $5 t-shirts for $40 and selling $15 hoodies for $60 or whatever it might be.
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Jim O'Shaughnessy: Exactly.
20:08
Alex Danco: That is your business model.
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Now, the reason why you get to sell a t-shirt for very good margin, the reason why that's your business model is because people are willing to pay for these things because they have meaning to them, there is tremendous meaning in buying a band's t-shirt if that meaning has been created for you by the band and by the show and by the crowd and by your friends.
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That meaning doesn't exist.
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Like normally in the world, in the black void of space, there is no inherent meaning of you have to buy this Black Sabbath t-shirt, that's not actually a part of the dark matter of the universe.
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It emerges because meaning gets created because that's people do together.
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It's a very, very human thing to create meaning together and this is what bands do.
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Bands are in the business of creating meaning, and then selling a merch that you are compelled to buy, because it fulfills part of that meaning.
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Both socially to yourself, to other people, for the next show, all those great things.
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This is just very sort of being in a band 101, culture 101 is all these things.
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Jim O'Shaughnessy: And hang on, let me just insert, the other thing, the bands at the highest level, and I'm thinking here Grateful Dead.
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The Grateful Dead so hypnotized or delighted their audience that everyone one who loved the Grateful Dead became an ipso facto salesman for the Grateful Dead.
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They were like, I remember when I was a teenager, "Are you going to go to the Dead concert?"
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I'm like, "I don't think so."
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And it's like, "No, you really have to go, you can't understand them unless you..."
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And I had this thought and I saw it in a book that I was reading, the Grateful Dead turned everyone who liked them into a sales rep for the Grateful Dead.
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Alex Danco: Yeah, actually let's come back to the Dead because there's actually an interesting analogy here with sort of the taping section and what that did to music, so let's get back to that.
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But I want to sort of get back to this simpler point around meaning and this idea that like, meaning is one of the greatest things in the world, because it's something that comes into existence because of interpersonal relationships and interpersonal behavior and things that really make us us.
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Like, and when you're, when, when, when you're in a band or if you are an apparel company, or if you are a creator of any kind, or if you have any, any, any sort of brand that in folks, any sort of identity and feeling whatsoever, what you're in the business of is of creating affinity to this meaning and to this identity in a way where people want to participate in a multiplayer way.
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What's really important here, if you go back to the band and the t-shirt example is not just you wearing a t-shirt in a room by yourself.
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It's the meaning that gets conveyed when you show up to the next thing and you're wearing this shirt conveys, I was at this show.
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And then the other person who was at a maybe slightly different show with a slightly different band has a different thing.
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And then you both see each other and you look across the room and you go, "Nice."
22:57
And that's why you bought the shirt, that feeling is why you bought the...
23:02
That's what it's all for.
23:05
And you can replace band concert t-shirt with...
23:05
One of my coworkers has a really great story.
23:05
She likes to tell about going shopping at the mall and going into the beauty section of the mall and leaving Sephora with the big bag of Sephora stuff, rather than the small bag.
23:22
And then you see other people with the big bag and you lock eyes and you go, "Nice." Jim O'Shaughnessy: Nice.
23:26
Alex Danco: What is that?
23:27
It's that interpersonal meaning that got created, which is what it's all about.
23:27
What does this have to do with all this blockchain nonsense?
23:35
But the reason why I'm sort of starting with this is because this whole idea of these interpersonal relationships as the foundation of everything is a rather backwards way from, I think, how a lot of people from the outside think about commerce and think about business and think about utility.
23:51
They're like, "Oh, the ground level is utility.
23:56
And then on top of that, there's meaning that gets created."
23:56
It's like, no, no, no, no, no, that's precisely backwards.
23:59
The ground level is meaning, utility comes on top of that.
23:59
It's like- Jim O'Shaughnessy: Totally agree. Alex Danco: ...
24:06
it's not, here's some sort of useful thing of which affinity is created on top of that, it's precisely the opposite, and that goes deep, deep, deep, down to how people work now.
24:14
I'm laboring this point for a reason which is on the internet, it's actually quite hard to replicate this in any real way that works.
24:21
Because there isn't a very good way of creating and carrying around meaning associated with yourself outside of it being represented by places that you were going to. So you know what? Actually strike that?
24:45
That's a path, let me get back to later.
24:45
That's not a good way to explaining this.
24:55
Let me actually go a different way.
24:55
If you go look at many successful NFT projects today, by the way, if you really under a digital rock in which case is good for you if you don't know what these NFT projects are, these are essentially these started out really as these sort of collectible things where it's like it's an image that is hosted on a public blockchain where there is a smart contract associated with it that you can own.
25:17
contract associated with it that you can own. And way that you own it is you basically say, "Hey, I own the wallet and have the private key associated with wallet that shows that I
25:28
am the one who is associated with this particular smart contract, which is hooked onto a particular image effectively called the JPEG by everybody that shows, hey, I am the "owner" of the set of meaning for which there is a handle that is very legible to you associated with this silly picture of cat or something." So I look at this and be like, "What on earth
25:43
So I look at this and be like, "What on earth is the big deal about that?
25:48
Who on earth cares that you own this picture of a cat?
25:48
Oh my God, I can right click, save it. No, I got your thing."
25:54
It's like, okay, are you done?
25:54
All right, the JPEG is just a human readable format for the underlying thing, which is a way of expressing interpersonal shared meaning in an open public format, which in this cases might be the Ethereum blockchain or it could be some other blockchain, or frankly it doesn't even have to be a blockchain.
26:21
It could be someone else, it just happens to be that these public blockchains are where everybody has convened, the shelling point where everybody has gotten together and says, "Well, if we're all participating here, this is where I'll participate too because this is where the meaning is."
26:34
And this is why I keep coming back to this band thing, which is, look, these public blockchains, so I don't know what you meant yours, whether it was Ethereum or whether it was somewhere else, but these public blockchains are a new way to programmatically in public, in an open shared
26:51
state that everybody has agreed on, represent meaning and interpersonal relationships and social meaning in a way that is programmable and public and modifiable in a way that is according to rules, where that meaning is the foundation of something that is new and interesting. And we can pile things on top of that meeting like, oh, whoever is an owner of this bit of
27:07
And we can pile things on top of that meeting like, oh, whoever is an owner of this bit of meaning can be associated with this cool clip of a LeBron James dunk from the All Star Game, in the case of NBA top shot, or has the rights to enter this very cool party if you can show that you are an owner of this meaning or has the rights to get into this episode of Infinite Loops in your case.
27:27
You are an owner of this shared meaning, therefore the original writer of the smart contract can grant certain privileges to the person in that meeting.
27:36
Or frankly, if you look at some of the stuff I'm working on at Shopify, if you own these NFTs and your wallet, then if you plug it into a store front, you can get special merch gets unlocked or special discounts get unlocked or special mechanics get unlocked.
27:49
And you start to realize there's this rallying cry of people being like, "Oh, finally NFTs are useful for something."
27:54
Because there's utility to them.
27:54
It's like you're sort of superficially, but deeply you're missing the point.
27:59
It's the social meaning is the utility, everything else just kind of rides on top of that. And so...
28:03
Jim O'Shaughnessy: No, no, no, no, no.
28:08
Alex Danco: I'm running on here. Jim O'Shaughnessy: Yeah. No, no, no.
28:10
Actually I let you run on because I totally agree with you.
28:10
That was my assessment as I did a deep dive on why NFTs were interesting and why I really wanted to understand how they worked just the actual mechanics of how they work and the idea that I think profoundly most people get wrong is that pre markets are basically emotion driven, and what determines meaning?
28:44
Emotions, and so as you put it, everybody's got it completely the wrong way.
28:52
It's like, here's the utility, and then there's this stuff up here, wrong which so continue.
28:59
Alex Danco: Let's go back to my band example, and let me give you a couple of examples of what I think NFTs are not about.
29:01
And this will be controversial because some people actually do very much think that this is what NFTs are for.
29:05
And I would love to debate those people, but there's this whole idea out there in the world, which is that NFTs are going to save music, because they're a new way to do rights.
29:12
Instead of selling out to a record label and dealing with royalties, NFTs are this new way to programmatically do royalties that can be on the blockchain and fractionalized, whatever.
29:23
It's like, oh my God, that's fucking stupid.
29:30
It's like, even if this does work, which it won't, you've just replicated the crowd fundraising for this stuff.
29:37
And ultimately you're just going to reinvent regular labels, that's dumb.
29:37
It's like, look, if you want to figure this out, go to town.
29:42
That's not why NFTs are going to be good for music.
29:45
NFTs are going to be good for music because they're going to help you sell more t-shirts, that is why they're good for music.
29:49
It is actually NFTs are going to be incredible for music, but not because of the complicated way, they're going to be good in a much, much simpler way.
29:57
And I can tell you this as a former musician, that is why these things are going to be cool.
29:57
And so expect some very, very cool things coming out of my team at Shopify and some of our partners in the coming months forward this, by the way. Jim O'Shaughnessy: Yeah.
30:10
Well, just to interject, we are completely simpatico.
30:10
I believe that entirely the thing about music, when I first saw that, them trying to make a use case for this is going to save music because of this, I literally laughed out loud.
30:27
Alex Danco: It's going to save music, but it's just going to save music because it's going to help- Jim O'Shaughnessy: Totally different reasons. Alex Danco: ...
30:33
musicians compete with apparel companies better.
30:36
Jim O'Shaughnessy: Exactly.
30:37
Alex Danco: It is a lot simpler.
30:40
Let me give you a couple other things NFTs aren't, because I think this might be useful too, NFTs had basically nothing to do without the art, nothing to do about the art except for one thing.
30:49
Which is, first of all, there's this huge idea around the...
30:49
I don't want to say the beginning of NFTs, because NFTs actually started with crypto kitties a few years ago, but last year during the first big surge of, we're going to NFT everything, there's this whole idea of...
31:02
Remember there was this way for about a month of people going and putting all these famous artworks from museums into NFTs and being like, "I NFT-ed this, this is valuable."
31:06
It's like, okay, no, it's not, there's no value to this whatsoever, absolutely no one cares.
31:11
And the reason why is that the image or the metadata or the video attached to it or whatever it's like, that's just a human readable with a handle for what's actually valuable, which is this piece of social meaning.
31:28
It's a little bit like, let's say you have a vinyl record of Abbey Road or something and I go write Paul McCartney's signature on it.
31:47
That's not worth anything to anybody.
31:47
If Sir Paul writes his signature on it, that's worth something to some people, maybe nothing to other people, depending on if you like or hate The Beatles.
31:56
But all of a sudden now that has subjective value, and if Sir Paul writes, "Dear, Jim, I had such fun time at your place last night.
32:01
It was really one of the times of my life.
32:01
This is to you and to everyone you love."
32:07
Now that has even more meaning, but only to you.
32:07
Because now it's very, very hooked into this kind of social meaning, where it's not about the album, it's not even about the signature, it's about the meaning that it represents and how that's valuable to you.
32:19
Jim O'Shaughnessy: Exactly.
32:20
Alex Danco: And this is coming back to this idea of why it is notable that you did your experiment with the podcast guest thing on the blockchain, as opposed to somewhere else, which is, you can take any of these NFT-ed things, you can take any individual thing and take that isolated
32:39
mechanic off the blockchain and so you could do this and date this, and pedantically you'd be true, except it wouldn't be true because you would be doing it outside of the social context as opposed to inside. And the social context is it, that is the thing that's valuable.
32:49
And the social context is it, that is the thing that's valuable.
32:55
Jim O'Shaughnessy: Yeah, I totally agree.
32:59
I think that was after a lot of studying of the whole NFT landscape.
32:59
As usual, 90% of it is just preposterously stupid and wrong.
33:08
Alex Danco: But they're stupid and wrong in interesting ways though.
33:15
Jim O'Shaughnessy: Yes, I agree. I agree.
33:16
Alex Danco: Fascinating ways.
33:17
Jim O'Shaughnessy: But the ones I loved was the one you brought up was the folks going to museums and taking pictures and saying, "I now have a Mona Lisa."
33:26
Alex Danco: You can be owner, you now own the IP rights of this.
33:30
What is it about the people who bought...
33:30
It's like they bought an NFT of an original copy the Dune script.
33:38
Now they're like, "Now we own Dune and we can have a say in the next movie." It's like, yeah. Okay.
33:44
Jim O'Shaughnessy: Here's something though.
33:47
Alex Danco: You are the owners of something, but it's not what you think you are.
33:51
Jim O'Shaughnessy: It's not what you think it is.
33:52
Well, it's like the old, one of the first grifts was in the Middle Ages, guys would go from town to town.
33:58
And they would sell blocks of lead to the peasants.
34:03
And they would say, "I guarantee you that as long as you don't think about that, turning into gold, it will turn into gold.
34:08
Alex Danco: I really thought that the beginning of this, you were going with this.
34:12
One of the oldest scripts of the book, people would go from town to town and they would sell indulgences like, bad, bad Catholic, bad. Happy with the rule.
34:20
Jim O'Shaughnessy: Hey, listen, so sorry.
34:23
But that's one of the best cults there is, the Roman Catholic Church.
34:31
Alex Danco: I'm Catholic and I don't disagree with you.
34:38
Seriously, Catholicism is the original blockchain, where you can say the Torah is the original blockchain, all these things.
34:43
Jim O'Shaughnessy: Actually, you are right, because one of the things as I was reading about this stuff, Paul saw, so he falls off his horse, sees the light.
34:56
I love that people don't make that connection, that he fell off his horse and then suddenly changed his way.
34:59
But do you know what Paul did?
34:59
He turned Christianity at the time, it wasn't Catholic or Protestant at the time, but he made Christianity the first meme, religion. And how did he do that?
35:15
With his precepts, I can't remember how many there were, 138 or whatever.
35:21
Alex Danco: Are you saying the old Testament didn't have memes?
35:22
Jim O'Shaughnessy: No, I'm saying that Paul was the first to do it about a religion, a belief.
35:25
And the big thing here, which is why Christianity got my friend, Rory Sutherland calls Christianity Judaisms diffusion brand.
35:39
Anyway, the idea though, that Paul did with the memes was, we don't care where you were born, we don't care what color you are, we don't care what your prior gods were.
35:53
All we care about is that you see the light and join this new religion.
36:00
That hadn't happened before, you worshiped the gods of whatever village you landed at.
36:06
Alex Danco: Those are interesting parts of the story, but I think there is something fascinating sort of thread to pull on here in the sense that you can take any element out of any religion and then stick it into its own empty room with white walls and be like, you can replicate this in the form of earthly morals and it's the same or whatever saying, you could do that, but it's in the absence of this context.
36:29
And you're sort of missing the point of what this is about in the very much, the same way as like, ooh, but you could just do that with the database.
36:33
It's like, well, that's true.
36:36
With a database, with in fact, significantly less guilt and moral baggage, as a matter of fact.
36:41
As a matter of fact, it's actually significantly less costly to do it, that's the real.
36:48
The enlightenment was people pointing at religion and saying, "You can just do that with the database.
36:52
I can just right click save on those things."
36:56
Jim O'Shaughnessy: So true. So true. Alex Danco: Okay, yeah.
37:01
The enlightenment, TLDR, the enlightenment was about right click, save mentality.
37:09
Then the romantics came along and said, "No, but." Jim O'Shaughnessy: No.
37:16
Alex Danco: The romantics were just a bunch of Bored Ape holders three centuries ago.
37:18
See the mud that they just put their seed phrases out in Vienna public.
37:23
They nailed their seed phrases to the Vienna public square.
37:28
Be like, "Could somebody help me get my wallet there?" No.
37:36
Jim O'Shaughnessy: That is true.
37:36
Now we'll cool it with the histrionics because I have an actual serious thing to put to you, and this is real, this is true.
37:46
I happen to know somebody I'm related to him who works for an extraordinarily well known, worldwide well-known artist.
37:55
And this artist also controls another artist's work, which the artist she controls is probably 100 times better known than that artist.
38:06
And what about, because I had a serious conversation with him, you might want to take some of these artifacts and NFT them because you could probably raise a shit ton of money for a foundation that gives money to what this previous artist held dear. Alex Danco: Maybe.
38:37
I would say, but I guess, my take on this be, maybe you could do that, but think through what it is you are actually really trying to do here.
38:43
If all you're trying to do is NFT a bunch of album covers or things like that, and you are very, very explicit about this to the people you're selling to them.
38:53
You're just like, "Look, you should think of this as the equivalent of a digital autograph signed copy of this thing.
38:56
The meaning out of this is exactly what you see and what you get."
39:02
And if people are like, "You know what?
39:02
I actually really love of this music, I really love this thing, this is a great idea."
39:06
I'm just going to treat this as an excuse to give money to charity, then that is completely above board and absolutely fine.
39:10
But again, you don't need NFTs to do that, you can just do a raffle for real signed copies of stuff.
39:24
So that would be an example of, of course you could do that and it's great, but who cares?
39:28
You don't need the blockchain.
39:28
On the other side of the fence, you could be like, "Oh, we're actually going to...
39:31
You should start a discord, you should get everybody in this discord.
39:36
And then this is how you're going to go build a giant, everything, and then it becomes a giant rug-pull."
39:40
It's like, don't do that.
39:40
I guess, my take on this is, be very clear on what it is you're actually trying to do with these things.
39:49
It's like these are not technologies for creating indelible artifacts of this album color or whatever, it's a way of saying, "Hey, I actually want to create something that's going to persist about a set of interpersonal relationships and social conventions that I would like to make about this idea that exists in this broader social context of all the other little micro social contexts that have been created on Eth or on wherever."
40:14
If this is what you want to do, and if this is what your fans want to do, then that's awesome.
40:19
And then please go through that and then you can go play the infinite game together of people being like, "Well, I'm going to see what I contribute and you see what you contribute."
40:26
All of this things are great, but I guess the broader point here, actually, I'm glad you brought this up, is I would like to sort of poke a hole in the biggest narrative thread that I would love to change about all these NFT stuff, is that entities are not about scarcity.
40:40
This whole idea it's like, NFTs are a new way of creating scarce items that are just absolutely scarce.
40:45
So that's why they have values because they're so scarce.
40:49
It's kind of like, I suppose so.
40:49
Jim O'Shaughnessy: I don't even think kind of.
40:52
So I believe this even more strongly, I believe that trying to say that you can impose artificial scarcity on a digital item that can be by definition, endlessly reproduced is probably a bad place to try to make that model.
41:14
Alex Danco: Well, actually, I would say there is a kind of scarcity that is very important about this, but it's not about the item.
41:21
But scarcity is about being able to prove that there is a very specific person who is associated with this kind of meaning.
41:26
Jim O'Shaughnessy: Totally agree.
41:28
Alex Danco: That is where the scarcity is, it's scarcity of name, space, and signing authority, is what the scarcity is about.
41:32
Not about that JPEG, it's not about the whatever.
41:37
Jim O'Shaughnessy: Totally agree. Totally agree.
41:38
Alex Danco: But that kind of scarcity, is what would it makes possible?
41:39
Jim O'Shaughnessy: I'm a big art collector, and the provenance is everything, literally everything.
41:50
If this happened with a museum that had this, what it thought was a Rembrandt, and it built this huge business around this Rembrandt, man and a helmet or something.
41:58
And people came just to see that and they bought the meaning, they bought the tote bags and they bought the t-shirts, they bought it all.
42:12
And then along comes an art authenticator and he or she is looking at, and they're like, "Yeah, not Rembrandt, school of Brett."
42:19
The whole thing collapsed. Alex Danco: Yeah, right.
42:25
All of a sudden that meaning evaporated and then everything else that was built on it, just crumbled. Jim O'Shaughnessy: Yep. Right. Yep. Yep.
42:34
Alex Danco: And the funny thing is that, what if it didn't have to, what if they had just immediately pivoted to, ha, ha, but already built this incredibly special thing, because really the Rembrandt is about all of us, isn't it?
42:46
Jim O'Shaughnessy: Right.
42:48
Alex Danco: That's what Web3 is all about, folks, WAGMI, we're all going to make it, folks.
42:57
But this is the thing where it's like, yes, there is an element of this that is about scarcity, the whole identity into being able to associate you with the meaning that's in there is about scarcity.
43:05
But what that enables is this incredible kind of abundance, which is the amount of meaning that could get created out of this is limited by nothing.
43:13
And this is, again, going back to my initial example, this is what bands understand, which is the default condition is there is no meaning.
43:17
The default condition is people don't care about your music and they don't care about your t-shirt, but with hard work and with good luck and with persistence and with style, and you can create something that doesn't actually have an upper bound on it.
43:31
And that's what this is about, that's what this is about.
43:36
Jim O'Shaughnessy: I completely agree, and it's one of the things that I think underline the whole idea of the abundance mindset versus the zero-sum one.
43:42
We now have tools, my friend, Matt Clifford, basically calls the internet, the greatest variance amplifier that human history has ever seen.
43:56
And we have these really cool tools on it that allow for an abundance mindset, which I know that you're a fan of, and this idea that you're tying in here, which I think is super important and I haven't heard very many other people talking about it.
44:17
And that is people who are trying to come up with narratives to describe what's going on, have got it, for the most part, really wrong.
44:22
What it's all about is, as you say, meaning, because that's us, that's human beings. Alex Danco: Yeah.
44:33
So one of the cool things is that, I can say this from a vantage point at Shopify, is that all of this is fairly obvious to us and it's not because we're smart people, it's because when your whole life is working with merchants, it's like, these are merchants whose job is not terribly dissimilar from musicians.
44:51
It's create meaning, create community, create a reason to come back and talk to each other, and therefore products get sold because of that underlying meeting.
44:56
It's like, no, shit, that's what this is for.
45:00
This is what we already were doing, this isn't new, this is kind of like it just makes a lot of sense.
45:07
Jim O'Shaughnessy: Right.
45:11
And it's repackaged and it gives the tool to greater extend the reach.
45:11
But yes, I agree with you.
45:17
Alex Danco: So, hey, we should NFT this conversation and sell it, and then if you buy this NFT, you'll become the only person who gets to understand what NFTs are for.
45:27
You have the exclusive rights to it, everybody else gets to be wrong.
45:32
Jim O'Shaughnessy: Everyone else is wrong.
45:34
Alex Danco: Unless somebody right clicks and saves the audio file of our podcast, in which case they have stolen it from you. Jim O'Shaughnessy: Yes. And you're fucked.
45:42
Alex Danco: Good luck to you. Sorry for your loss. Sorry, you got hacked.
45:44
Jim O'Shaughnessy: Well, this leads into Web3, because I was very eager to hear you do a bit on Web3, it's like so much stuff is being written, talked about, blah, blah, blah, blah, blah. What are your thoughts?
46:07
Alex Danco: I mean, to some degree, I think it's like being able to draw a precise box around Web3 is a little silly because it's like there's just the web and it's all these cool tools.
46:20
And certainly at Shopify, our job, I mean on the blockchain team and also generally is not to give merchants the best of Web3, as opposed to Web2, our job is to give them good things that help them.
46:37
Jim O'Shaughnessy: Exactly.
46:37
Alex Danco: And it's like if you want to draw a box around this bunch of stuff that's Web3, fine.
46:39
However, in an attempt to not be sarcastic and actually answer your question correctly, here is I think a good way to think about what Web3 is.
46:48
So if you go back to this whole idea of, okay, there are these things called blockchains, what is the point to them? What do they do?
46:54
Why do we care about them?
46:54
It's like, okay, what is the blockchain?
46:57
A blockchain is a new kind of network computer that is designed around a really interesting set of constraints.
47:02
And the constraints are very expensive and but they do something really interesting, which is they allow for a bunch of people to create this shared state that everybody can agree on the inputs and everybody could agree on the rules.
47:14
And it's very, very constrained in how you're able to modify this state, but everybody can agree on what has been done.
47:18
And different blockchains have different rules, the rules of Bitcoin are different from the rules of Ethereum or different from the rules of flow blockchain or polygon, any of those things.
47:27
But ultimately you create this shared bit of state that can grow in ways that are very, very constrained, but are highly observable and agreed upon.
47:37
So what is the point of that?
47:37
Who the fuck cares, what is this for?
47:43
Well, what's interesting about this is that this creates this new format for something that you can call code that can make commitments. What does that mean?
47:48
Well, it means that you can submit some code to this that will run, and once it's running, you can actually trust that it will run in a fairly deterministic way, independent of any of the actors involved.
48:01
So long as you trust that Ethereum will exist, then you can expect that this smart contract will behave in a certain way.
48:05
It's code that can make commitments, that's neat.
48:10
Well, what's the point of that?
48:10
Well, what's really interesting about code that can make commitments is that it makes possible a new setting for running certain kinds of applications.
48:23
Well, what are those certain kinds of applications?
48:23
It's like, well, it's a new setting for whether, it's like developers to go create little instances of rules that will follow those codes that can make commitments.
48:35
And that might have some value to people, both because of the inherent work that they do, but also because of the shared state that they do it in.
48:42
Again, going back to this, well, there's a shared meaning and that has some interesting value, and if you're also participating in this, then that's really cool.
48:51
And I'm sort of building and building there, but what ultimately that makes possible, and really it's like it took us the better part of a decade to actually really settle on this as the atomic unit of what's the point of this is wallets.
49:00
We had all these false starts with crypto about how regular people could think about what the atomic unit of it was.
49:07
Like, is the atomic unit the coins?
49:11
It's like, well, yes, but then largely what you think of what you're doing is speculating.
49:15
Is the atomic unit like network and ICOs as a way of bootstrapping a certain thing?
49:22
It's like, oh, maybe, if what you think of what you're trying to do is various kinds of incentive design and whatever.
49:26
But ultimately now I think we're sort of at this point that largely actually mimics the beginning of the internet and the web where it's like there was 10 years of web before the web browser where it was very hard to actually do anything with it.
49:40
And then the browser came along, it was like, ah, okay, now I can actually do stuff.
49:40
Same thing with wallets, I mean, wallets have existed since the beginning of blockchain.
49:45
It's literally just like an address and then a key that you sign with to show you're you, but it's like it wasn't until I want to say Metamask is the first sort of modern wallet that let you actually do things.
50:01
And now these modern wallets, like Rainbow that are amazing where you're like, "Oh my God, I get it."
50:05
The point of this is for me to be able to say, "Hey, this is a way for me to do informed consent for things where you know it's me consenting because of the blockchain in the back being you know it's me, and you know it's informed because of what is basically called, if you ever interacted with this, it's like, sign this message.
50:21
Sign this message to inform consent to X.
50:28
And it can only be you because it gets all go back to, so the point of the blockchain is so that why wallets can do informed consenting to things and the wallets can do informed consent that has meaning because of the shared state that's in the blockchain back. So pause for a second.
50:43
Now what on earth is that good for, if again, this is only useful in this super slow, clunky Web3 environment that doesn't actually have any real work it's doing yet?
50:56
It's like, well, now you can go back and you can say, "Okay, well now we can think about this web space full of web apps and full of databases and applications and abstractions about what's in those databases and APIs through which you can access them and then applications that build on top of them and then users who use this applications.
51:13
And it's like, all of that web stuff can still exist, just now bookended with these two very strong concepts of the wallet and informed consent and removable informed consent.
51:23
I can take it with me, I can remove my consent from somewhere and add it to somewhere else.
51:29
This is all the idea of how Unfollow is the most important button on Twitter?
51:35
Remove Wallet is the most important button in Web3, it's like you can just leave and go somewhere else.
51:39
But again, it's like you now have this whole set of web stuff that can now do work, except for when it's bookended by these strong forces at the ends of this shared state on one side, on a blockchain and wallets and your keys that you sign with, and only you sign with on the other hand.
51:57
All of a sudden this radically, it's not like it requires you to rewrite the internet from scratch, it doesn't and that's important.
52:05
It sort of rechanges a lot of the relationships between those things and what is strong and what is weak and what is powerful and what is not.
52:10
And most importantly, it changes where the switching costs are.
52:14
And that changes everything about how the internet actually works because I've explained to so many people, I explained them to this whole idea of, I tell people, "Imagine a merchant storefront, and you can just connect your wallet.
52:26
And because of what's in your wallet, now all of a sudden, the storefront reacts to you.
52:35
You get special discounts, you get special this, you get special that."
52:37
And they're like, "How is that different from login with Facebook? Isn't it the same thing?
52:41
Isn't it just now like login with Metamask.
52:41
Doesn't Metamask now be the owner?"
52:41
It's like Metamask is just like UX.
52:45
Metamask, it's your key pair that is associated with the thing.
52:51
That's very, very hard for people to understand.
52:51
The fact that all the stuff is in public is just associated with you and this thing you have, which is just a string of numbers, numbers of letters, it's just literally like a password, like a seed phrase that you have, that is this big key to all of this that you can remove and add and remove and add and do what you like.
53:09
And it doesn't change what any of the stuff in the middle does, that's still all these web components and we can still do stuff, but it changes the degree to which you have switching costs, navigating around it, and therefore what people can get away with.
53:20
Like, what actually are the power dynamics along these sets of things.
53:26
And so specifically, actually, this is all very abstract, let me give you a specific example here, which is, right now, you have all these, so there is this NFT collection called the Bored Ape Yacht Club, which is one of the most famous/infamous NFT collections, because it has all these celebrities in it and all these crypto bros.
53:46
And to a lot of people, they kind of represent the most distasteful, it's high pro behavior.
53:46
Bored Ape does ultra pro behavior and it's one of the richest NFT sets.
53:57
And these people because they're these idiots, a lot of them are constantly getting hacked and getting their NFT stolen from them for various reasons.
54:07
And so there's this big thing of, oh, go to Opensea and have them freeze the NFT.
54:13
And so you might say, "Well, this is crypto.
54:13
You can't freeze an NFT.
54:13
It's on the blockchain now.
54:18
It's like, whoever owns it now really owns it."
54:18
It's like, okay, well, what Opensea can do is it can go to any of the...
54:22
Opensea can say, "Okay, well, we're just going to take that particular smart contract and token ID and say, 'well, that is not going to appear in any more Opensea search results, you can burn from this thing."
54:33
So you might cry foul and be like, "Oh my God, wait a minute.
54:38
This is just central law, what's the point of all this?
54:42
If somebody in the middle can just turn it off, what on earth is the point about this?
54:42
This gets to a really big, important aspect of this, which is that Web3 doesn't mean un-censorable, it doesn't mean ultimate, it doesn't mean nobody can do anything.
54:52
It just means it is relatively different.
54:58
The power of what you have versus what you don't have is relatively shifted towards your ability to just move to another NFT marketplace.
55:04
You can just move your wallet to somewhere else and maybe if they're not censoring it, then you show up there.
55:09
The thing you fundamentally own, the meaning is always there.
55:14
Now other people might decide to not recognize it, that's what censorship is.
55:20
That's real censorship and you can never stop that.
55:20
If everybody agrees to ignore you, that's actually something that nothing can stop, but it doesn't mean that you don't have the original thing, which is that key pair associated with your ID, this is maybe significantly going into the abstract cloud.
55:38
But to me, to get back to your original question, though, of what is Web3?
55:42
It's like Web3 is basically Web2, plus these two booklets of the blockchain, plus the wallet that give you this web ability to take your informed consent with you and take your idea association with this meaning around with you, such that your freedom to move is significantly increased. That's Web3.
55:55
And so Web3 is the set of apps and behavior and stuff that emerges in this new understanding about your ability to move around. That's Web3.
56:08
Jim O'Shaughnessy: Bingo. Bingo.
56:09
Alex Danco: Is that what you wanted?
56:11
Jim O'Shaughnessy: Yeah, it is exactly what I wanted because, and I put very, very succinctly because that is- Alex Danco: I wasn't succinct, that took 10 minutes, but you just take the last 30 seconds, get rid of all the crap at the beginning.
56:26
Jim O'Shaughnessy: Succinct for you, Alex.
56:26
But see, that is the insight, the insight is that because we can move much more freely than we could prior, that will bring a whole host of people, making things, creating things, doing things because of that fact that you can move around. Alex Danco: Yeah.
56:52
Well, so what's actually really interesting is that there's the Charlie Munger principle of always invert, it's like that's actually a pretty good way of understanding what it is that blockchains are actually doing in the back of this, which is blockchains don't tell you what is true at all.
57:08
What they tell you is what we have all read to ignore.
57:08
Specifically, blockchains are a set of rules so that everybody ignores everything, but the longest chain of blocks.
57:22
Jim O'Shaughnessy: Right.
57:22
Alex Danco: That's kind of interesting. What does that mean?
57:24
Well, it means that everything other than the longest chain has been ignored.
57:24
So therefore what's left is the longest chain.
57:30
Okay, well, how do you get into the longest chain?
57:30
Well, I'm going to say, in the case of Bitcoin here it's like, well, you get into the longest chain, if a miner’s block, and it's successfully mined and it goes in.
57:38
Okay, well, how do you get into that?
57:44
It's like, okay, well, in order to do that, you have to successfully essentially win this contest of successfully finding an answer to this mining problem.
57:54
And I want to get into what this is, but essentially involves finding the right random number such that something all hashes out to solve something correctly.
58:02
So essentially means a random minor will solve it, proportional to how much computing power you throw out this thing.
58:06
It's like, okay, well, you ignore everybody else.
58:06
you throw out this thing. It's like, okay, well, you ignore everybody else. So that means, okay, that is starting to provide some insight into what this is good for, which means, even if you are big, even if you are powerful, even if you are whatever,
58:20
you cannot spam the network, you cannot censor the network, you cannot do anything because the network will always ignore you unless you are the person who found this particular puzzle this time, and then the next time, and then the next time, and then the next time, and you will not be that successful person every time. And what Bitcoin sort of enshrines is this idea
58:34
will not be that successful person every time. And what Bitcoin sort of enshrines is this idea of, because everything, but the longest chain gets ignored, that means that all effort by whether you
58:49
call them sensors or spammers, or people who are deliberately not listening to submissions from certain people who want to transact or whatever, it's like all of that will be ignored because that's what the Bitcoin protocol gives you a way to do, is very, very, very conscious, structured ignorance of everything, but X. And so once you take out everything,, but X what's left is X,
59:07
And so once you take out everything,, but X what's left is X, and that's a super interesting basis to start with.
59:13
That's your shared state that you begin with. That's kind of neat.
59:17
Jim O'Shaughnessy: Yeah, I think it's very neat.
59:19
And I think that one of the things that gets lost in the cacophony of pitches and spams and everything else is I, at least have not come across too many people pitching me ideas around what you just got done saying.
59:37
And I will ask leading questions to try to get them to say, "Well, what this really allows us to do is, and you said it very clearly.
59:47
And so my next question becomes, Pareto, but so even of the 20%, do you think that everyone really gets that, truly gets that because it's going to affect the way you build what you're building.
1:00:14
Alex Danco: I guess I would challenge that.
1:00:15
I would say, does it matter if you get?
1:00:18
It doesn't matter, Bitcoin doesn't care, Bitcoin doesn't care if you get it or not.
1:00:21
Jim O'Shaughnessy: Right.
1:00:22
Alex Danco: It's just going to work.
1:00:22
And unfortunately working involve some dextralities that people may really not like.
1:00:25
But it's just it actually doesn't care whether you understand it or not. Jim O'Shaughnessy: Yeah. No, no.
1:00:31
You misunderstood what I was asking.
1:00:35
I was asking about get the bookend of the pre damn to be able to take your wallet with you, which means for example, I have 140,000 followers on Twitter.
1:00:45
I don't know how many you have, but- Alex Danco: It's less than that, 30 or something. Jim O'Shaughnessy: ...
1:00:57
but the switching costs are just insurmountable really.
1:01:01
Alex Danco: So there's a reason why the Twitter of Web3 is Twitter and not some new thing.
1:01:10
Jim O'Shaughnessy: Exactly but the question I'm asking is, do you think that there are enough people who are actually out there as entrepreneurs, startups, whatever, who are building with this idea in mind?
1:01:23
Brian Roemmele, who I've had on the show, he basically make his thesis is we got it, flipped on its head, talk about invert.
1:01:30
So he wanted to take those platforms invert and give all the power, and this is what I'm connecting as I'm listening to you, he wants to give the power to that wallet that gives the freedom. Alex Danco: Okay. So a couple things.
1:01:52
So first of all, I mean, who does control Twitter, if not it's users?
1:01:52
Certainly not as shareholders.
1:01:55
Jim O'Shaughnessy: You're very right.
1:01:58
Alex Danco: But seriously, folks, here all day, tip your servers, try to deal all, but people keep trying and trying.
1:02:06
This is actually an interesting point, which is, I think somebody put this, put it somewhat as, "You'll be able to buy credit default swaps on your Bored Ape before you'll be able to take existing Web2 companies and recreate them on the blockchain."
1:02:29
And I think it sounds like almost flippant, but it's true.
1:02:29
Which is the sense that the thing that's valuable is this existing graph of meaning that's starting and growing off of that, not, here's this thing that already exists in Web2, and we're going to pour it over to a new version that is the same thing, but on Web3, now every single one of those is going to not work.
1:02:50
Jim O'Shaughnessy: I totally agree. I totally agree.
1:02:51
Alex Danco: Uber, but on the blockchain is not going to work, extra on the blockchain is not going to work, but here is this established set of meaning where the more people use it, the stronger that meaning gets enshrined.
1:02:58
Now we're going to go do crazy, crazy, crazy things with it, that is what works.
1:03:02
Jim O'Shaughnessy: But that also kind of leads your ideas about world building, you've got to be building worlds.
1:03:12
Alex Danco: The theory is the ultimate world building, oh man, it is nothing but this.
1:03:18
Jim O'Shaughnessy: Exactly.
1:03:21
But like the underlying message, which I think is more important, which is you do just said it, you think you're going to port these things from Web 2. 0, to Web 3. 0?
1:03:36
Okay, not investment advice, kids, but I'm not investing a dime in that shit. Alex Danco: No, no, no.
1:03:41
Jim O'Shaughnessy: Where they want to take Web2.
1:03:42
Alex Danco: Wait, I mean, would you care to buy any of my CDS Bored Apes would you care for some exotic punk derivatives? Jim O'Shaughnessy: Yeah.
1:03:55
I'll do my gift verbally.
1:03:55
Alex Danco: Somebody probably is making he locks for Decentraland, that I'm sure is a thing.
1:04:04
Jim O'Shaughnessy: Of course, of course it is.
1:04:04
But the more profound- Alex Danco: The mortgages don't go bad, you can't default, it's the metaverse.
1:04:11
Jim O'Shaughnessy: Trust us.
1:04:16
Alex Danco: You can't default, you just turn the headset off and on again.
1:04:23
Jim O'Shaughnessy: That'd be a great movie, although, but see back to seriousness here, world building, building out these new things, ideas, et cetera, that's where Web3, in my opinion is going to be super interesting. Alex Danco: Yeah.
1:04:40
I mean, so I think people really underestimate the degree to which NFTs are not sort of a trivial application of Ethereum, they're actually to a large degree of the actual thing.
1:04:48
Because again, it's like, what is an NFT?
1:04:54
And NFT is just a human readable format for a smart contract.
1:04:54
It's like the smart contract is the thing that's important, but the human readability to it ultimately shapes what it is we do with these things.
1:05:06
And I think if you look at...
1:05:06
There have been many successful formats for NFTs, including the original sort of big project NBA top shot, which is super cool.
1:05:17
But the dominant kind of project that has been successful are these sort of PFP things where it's essentially a series of images that are all similar, but then all have differences.
1:05:27
So a different background or a different coloring shade or a different whatever. Why that?
1:05:32
Why do you think that is?
1:05:32
It's like, well, I mean, I have a thesis here, which is this idea of here is a common thing, and then here are all these variations on it, is essentially a human readable smart contract for fit in and then standing out, which fundamentally is the root of all human behavior.
1:05:49
Jim O'Shaughnessy: Exactly.
1:05:50
Alex Danco: That's what this is.
1:05:52
It's like, okay, fitting in and then standing out within the fitting in is everything that we're all trying to do all the time forever.
1:05:59
Jim O'Shaughnessy: Exactly.
1:06:00
Alex Danco: This is a format for that.
1:06:01
That happens to be quite catchy, this idea will never go away, never, this is never going away. So sorry, haters.
1:06:09
This will always be a very, very true way of representing this kind of idea.
1:06:09
Now Ethereum might go away one day or it will never go away, but it might be ignored by everybody sufficiently that we can say it has gone away.
1:06:22
But this general idea of, we now have a way to get programmable software that represents fitting in then standing out, that will never go away, forget it.
1:06:36
Jim O'Shaughnessy: Right there. Right there.
1:06:37
Alex Danco: Never bet against that.
1:06:39
Jim O'Shaughnessy: And so I would never bet against that because the other thing that I'm coming around to these species that I'm developing around this stuff is, do I see a tieback anywhere to evolution or aggregate social evolution and human behavior?
1:06:59
If I see that you got some powerful Juju there.
1:06:59
Alex Danco: All the Web3 people are just speed running every single sociological concept.
1:07:10
Jim O'Shaughnessy: Exactly. Alex Danco: Right.
1:07:14
Actually seriously though, it's like, you know what?
1:07:14
This reminds me a little bit about this is a big Toby Lütke thing about why he really believes in gaming, why gaming is good and it's essentially from a business leader's perspective is like, "Look, when you are running a business or doing anything at that sort of high leverage level, it's like the basic thing you do is you have to make strategic decisions with incomplete information."
1:07:39
You're like, "Here's the information I have.
1:07:39
I have to make a call about excerpt Y and then I'm not going to learn for like three, five, seven, nine months whether that was the right call."
1:07:48
But you have to make the call, so you do, and then eventually you get long, long feedback.
1:07:48
It's like, how often do you actually make one of those decisions?
1:07:52
Once a month, once a week at most or something that you don't actually get to practice these things very often.
1:07:57
So it's hard to actually learn as a CEO and grow.
1:08:01
He's like, "Whereas when I'm playing StarCraft, I have to make these kinds of decisions all fucking day."
1:08:06
You're making one of these a minute, and so you practice, practice, practice, practice, practice these kinds of decisions that have the general format of, okay, spend now or get more later.
1:08:15
This kind of resource or that kind of resource, net present value versus long cash duration of this kind of thing.
1:08:22
The velocity at which you make the decision and then learn from the decision is cranked up 1,000 acts from doing it in the real world.
1:08:29
And therefore it's like it's no kidding that you have all these incredible gamers go on to be quite successful at professional decision making.
1:08:38
But I say with poker players and investing or whatever, but it's like you just get a lot of practice doing the thing and you're going to get good at it.
1:08:47
Same thing with crypto and all these behavioral mechanics, it's like, you're just utterly speeding up the frequency and feedback at which you can make catastrophic mistakes about what people are like.
1:08:57
Jim O'Shaughnessy: Which is absolutely true.
1:09:02
And the whole Flynn effect probably, Let's- Alex Danco: What's the Flynn effect?
1:09:10
I actually don't know what that is.
1:09:11
Jim O'Shaughnessy: He's the professor who looked at why IQs were rising all throughout the 20th century.
1:09:20
And basically he posited that his original thing was nutrition.
1:09:29
And then later people who were speculating on, because the Flynn effect is an empirical thing.
1:09:35
They had to renorm the IQ back to 100, because it would be something like 116 now or whatever.
1:09:42
And the reason that most people are talking about it now that it happened was this very effect that you just mentioned, the instantaneous feedback through gameplaying.
1:09:52
So it's like there's a good book, I read it a long time ago, so it's something along the lines of everything that your parents said was bad for you is actually good for you.
1:10:04
And the loop that I'd pick up here is the feedback.
1:10:13
So I did get pitched on something that I really took a long time and thought about, I still haven't said no, but what it's doing is essentially a gaming motif for investing with super-fast feedback, but it isn't stressing the slot machine aspect.
1:10:28
It is stressing, as you put it with the CEO having to make these decisions, where they can't practice it.
1:10:38
This allows to practice actually reasonably good investment choices, but iterate it 1,000 times that that kid, I probably haven't made 1,000 choices like that in my 30-plus-year career.
1:10:58
Alex Danco: That's a lot.
1:10:58
Well, sort of come back to the question of, what is it that you do that is the equivalent of playing scales?
1:11:08
All elite people do this thing, you just have to know what that thing is for you.
1:11:08
For me, it's like I know absolutely what that thing that I do is, it's writing, it's every single day putting out a ton of writing output and learning how to get closer and closer to sequences of words with when assembled in the right order are kind of dangerous.
1:11:25
It's like you do it all the time.
1:11:32
Although, my public newsletter is in hibernation for a little while, springtime will come again, don't worry.
1:11:36
But right now it's all of my writing is on the paid newsletter, you get paid to read it.
1:11:42
It's called being a Shopify employee, that's the incentive, come work with us, shopify. com/careers.
1:11:49
Jim O'Shaughnessy: I love the way you work that in there.
1:11:52
And I, of course will miss attribute where you work to Spotify.
1:11:58
Alex Danco: That's right.
1:11:59
Jim O'Shaughnessy: So just as is our ongoing joke.
1:12:00
Alex Danco: Actually, yeah.
1:12:03
So actually my team might be doing something with Spotify pretty soon that is going to even further confuse my wife about where I work because she's a Spotify too, you're not alone.
1:12:16
My wife is the least online person I know.
1:12:16
And I love it, it's very fortunate.
1:12:23
Jim O'Shaughnessy: So we just always eat through the clock, just talking about nothing.
1:12:27
Maybe we could sell this to sign people who buy stuff.
1:12:35
One of the things that I am fascinated by, actually two, one is your idea.
1:12:35
People that I've been reconnecting with friends or relatives who are the least online people that I know.
1:12:42
And it is fascinating and it is almost like I don't know how to exactly put it, bu they're either Zen Masters or they're waiting for online world to reach their level of- Alex Danco: Right. Let me flip it around. Let me actually ask you.
1:13:27
So, okay, if you're in a room of people, if you're in a room of 10 people at a party, and even if no online topics come up, what is the tell for who is extremely online?
1:13:39
Jim O'Shaughnessy: Wow, that's a good question.
1:13:47
Well, do they have their phone with them? Alex Danco: No. So no phone. No obvious thing.
1:13:50
No obvious things, but what is the tell.
1:13:53
Jim O'Shaughnessy: You tell me, because I- Alex Danco: I just thought of this, I don't some answer in mind.
1:13:59
Jim O'Shaughnessy: I love that.
1:14:00
I'm going to put that on Twitter, what is the tell?
1:14:04
Alex Danco: What is the tell?
1:14:04
What is the tell that this person has permanently broken brain syndrome from being too online but with no specific online references, what is the general tell?
1:14:20
Jim O'Shaughnessy: Oh, my God, I like that one.
1:14:22
Alex Danco: It's probably something where it's like their language pattern is just very 2006 Tumblr influenced, and you just kind of know.
1:14:33
Jim O'Shaughnessy: I love that. I love that.
1:14:39
What I love about that too, is that, that is like a question I normally would come up with and I haven't come up with that one yet.
1:14:45
So thank you, I like that Alex Danco: Is people who can only think through social situations in terms of hyper concentrated, extreme examples of online cultural artifacts.
1:15:07
It's like, if we're having a conversation in this party and somebody is like, "Oh, I really screwed up at work today.
1:15:14
I sent an email to the wrong person."
1:15:14
And your brain immediately goes to, well, Ted Cruz liked a porn tweet on 9/11.
1:15:18
It's like, you're one of us, you're one of us, our brains are in sync.
1:15:27
Jim O'Shaughnessy: I love it. I love it.
1:15:29
Alex Danco: Well, that's the- Jim O'Shaughnessy: What a great day.
1:15:32
I mean, well, 9/11 wasn't a great day, but that particular 9/11 was funny.
1:15:36
Yeah, that was very funny.
1:15:36
And I like because that is a thesis that I'm actually studying right now, which is I stipulate that our brains are being rewired by being online.
1:15:44
And like everything, there are good parts and bad parts.
1:15:55
Alex Danco: That's totally, they fired the assistant immediately within microseconds.
1:16:15
Dad has been hacked by his admin assistant who has been fired. Sorry.
1:16:20
Jim O'Shaughnessy: And then you see the story real or not about the- Alex Danco: Doesn't matter, who scares if it's true? It's true now.
1:16:27
Jim O'Shaughnessy: Oh man. All right, my friend. Alex Danco: Okay. What a place to end it?
1:16:35
Jim O'Shaughnessy: What a place to end it?
1:16:37
Now that you are going to be recurring again, I will tell the audience when I told you earlier, you guys might think we're not making sense, when you read all of our stuff together, we make amazing sense without trying to.
1:16:56
Alex Danco: It's like art.
1:16:57
Jim O'Shaughnessy: It is, because if we tried, we'd fail miserably, the only thing that we really do with great consistency, Alex, is we never talk about if we have an agenda, you and I will text each other, "What do you want to talk about?"
1:17:14
And you say this, I say that, and we kind of list them.
1:17:14
We never, ever, ever talk about the things that we say at the top.
1:17:21
If we do that, something's gone wrong.
1:17:26
Alex Danco: That's right.
1:17:26
Well, as Oscar Wild once said, "People aren't good or bad, they're charming or tedious."
1:17:33
Jim O'Shaughnessy: Exactly.
1:17:36
Alex Danco: So we may talk about the worst thing in the world, but it's always charming, so that's okay.
1:17:38
Jim O'Shaughnessy: We'll always, always be charming. All right, my friend.
1:17:41
Alex Danco: All right, Jim. Thanks for having me on.
1:17:41
Jim O'Shaughnessy: All right. Take care. See you next time.