Dialogue with Variant Fund Co-founder How can the crypto world save traditional social networks?

Engaging in Conversation with Variant Fund Co-founder Exploring Crypto's Potential to Rescue Traditional Social Networks

The differences between large social networks platforms are decreasing, and new ideas and innovations are becoming less frequent.

Original title: Li Jin & Eugene Wei on How Crypto Saves The Internet

Original authors: Li Jin, Eugene Wei, David, Ryan

Original source: Bankless Podcast

• Musk NFTs are not even on the blockchain, it’s just a URL pointing to a JPEG.
• Thirteen Trends Tell You the Future of NFT Marketing Services
• Building an Engaged NFT Community: 12 Practical and Hilarious Tips

Perhaps now is the best time to build in the social field, as we have new business models – ownership, new computing platforms – cryptocurrency, and a new generation of users who are frustrated and resentful of existing social paradigms. They are hungry for something new, and these factors together prepare us for the emergence of new things.

One of the most important invisible forces that has influenced our world in the past decade is engagement algorithms. We have transitioned from social networks to social information streams, all without us even realizing it. How much autonomy do we have? Is this the promise of the internet? Can cryptocurrency solve these problems?

This issue of the Bankless Podcast invites Eugene Wei and Variant Fund co-founder Li Jin. Eugene Wei is one of the smartest product people we know in the Web 2 social space, and together they will discuss the above questions.

Hosts: David & Ryan, Bankless Podcast

Speakers: Li Jin, Variant Fund co-founder, Eugene Wei

Podcast: Bankless Podcast

Original title: “Li Jin & Eugene Wei on How Crypto Saves The Internet”

Section: Link

Affiliate advertising Web 2 social network model

• Eugene Wei points out that the affiliate advertising social network model has had a profound impact on the development of Web 2 society. Its main advantage is that it allows social media products to remain free, attracting more users and bringing more traffic and data to the platform. With the development of Web2, advertising has become the main source of revenue for most social media platforms, providing free services to users while offering a platform for businesses to showcase their products and services.

• Although the advertising model has been very successful in the early stages, Eugene Wei points out that over time, this model begins to show its limitations. Attention is a scarce resource in this economy, leading to zero-sum competition between social media platforms, each trying to attract and retain users’ attention.

• The advertising model limits other possible directions for the development of social networks. For example, due to advertising revenue, social media platforms may be less inclined to explore new business models or innovations. In order to attract user attention, content often becomes more entertaining and frivolous. In order to maximize advertising revenue, platforms may excessively display ads, disrupting the user browsing experience.

• Eugene Wei points out that with the growth of social media platforms and the increase in the number of users, the information flow has shifted from determinism to probability. Due to this probabilistic information flow, people see themselves as media figures. In order to stand out in algorithms, users begin to publish higher quality and more attractive content. Everyone hopes that their content will be seen by more people and pay more attention to the development of their own IP.

• Eugene Wei believes that due to the strong position of existing companies and the limitations of the advertising model, Web 2 society has reached its limit. Web 3 and cryptocurrency may provide a way to return to different social models. By changing the business model of social media, Web 3 may provide a way to return to more authentic and meaningful social interactions. Its decentralized nature also gives users more control over their data and content, resulting in a better user experience.

Web2: Social Media Homogenization and the Bottleneck of Business Models?

• Eugene Wei mentioned that people rarely adjust or reset their social networks. When people join new social networks, they might choose to follow different people or not follow all the same people. But on Facebook, Twitter, or Instagram, you rarely see people mass unfollowing or unfriending, which leads to a “graph lock-in” that restricts how we interact with each other.

• Advertising as the main business model limits the number of UI variants you can build in a product. Messaging apps are another new area we see for social construction, but their profitability is low, partly because their UI is not feed-based, making it difficult to insert ads.

• Eugene Wei observed that Instagram is imitating TikTok, and Twitter is also trying to imitate TikTok, while TikTok is trying to imitate Facebook. The differences between large social networking platforms are decreasing, and new creativity and innovation are becoming less common.

• Li Jin mentioned that network effect theory refers to the utility of a network increasing as the number of users grows. However, as the number of users increases, network effects can become negative, and more users may decrease the utility of the network. For example, people might post content in smaller social groups rather than on large social platforms.

• Li Jin believes that new computing platforms may provide a new direction for social media. For instance, VR, AR, or cryptocurrency offer different user experiences and ways of interaction, potentially providing new opportunities for the future of social media.

Network Effects, Cryptosocial, and Ownership

• Definition: Network effect theory refers to the utility of a network increasing as the number of users grows. When more users join a platform or service, its value to each user increases.

• Li Jin mentioned that Web2’s internet can be seen as feudalism, with a few platforms (lords) owning the land where we, as participants, users, and farmers, cultivate. However, the ownership of the land belongs to the lords. Users must share a portion of their income with the platform according to its rules. In Web2, there is no user ownership, and its core may be participation and distribution rather than ownership.

• Li Jin also mentioned that ownership could be a new business model that goes beyond advertising. It could allow social networks to finely differentiate different user groups and provide them with different value. This model can make smaller social networks and content creators more successful.

• Li Jin believes that Web3 or “cryptosocial” is a way to transition to capitalism, realizing capitalism in the digital realm, establishing a system of private property on the internet, and allowing anyone to own capital online. In this model, cryptographic technology makes us, as users and participants, owners of online capital.

• Li Jin emphasized that the definition of cryptosocial is for social platforms to have cryptographic ownership as the core of the user experience. This is in stark contrast to Web2, where there is no user ownership. In the social context, ownership as the core of the user experience can be presented in various ways, such as simple NFT-based profile pictures or fully on-chain social networks.

• Li Jin mentioned that we are still building for people in the crypto world. People are complex actors, and their decisions are driven by emotions and psychology, not just economics or rational utility. To make people truly care about financial ownership, we need to make them feel ownership first.

The Future Path of Web3 and Social Media

• Li Jin mentioned that as a social product, you must meet users’ desire for love or fame. Either as a “love” product, deepening relationships between users and known creators, existing friends, and contacts; or as a “fame” product, helping people gain more attention and fame.

• Li Jin believes that Web3 provides a new direction for social networks, no longer just about engagement and distribution, but about ownership. In Web3, users can truly own their data and content.

• Eugene Wei mentioned that social networks and social media can be seen as two ends of a broad and profound spectrum. Social networks are more about deepening existing connections, while social media is about expanding influence and gaining fame. One challenge currently faced by Web3 is that it is still at a very low level of abstraction, similar to a computer’s command-line interface, which makes Web3 less user-friendly and difficult to use for most users.

• Eugene Wei believes that financial capital and social capital are two different forms of capital, but in Web3, these two are combined. This combination may lead to trust issues as financial incentives might lead people to engage in unethical behavior for short-term gains.

• Li Jin believes that the problem with Web3 is not user experience but product-market fit. Currently, most encrypted social products only meet users’ income needs and fail to fulfill other human needs, such as a sense of belonging, community, and entertainment.

• Li Jin hopes to see more encrypted social products that cater to people’s other needs rather than just money. She believes that the future of encrypted social depends on our ability to innovate and provide users with truly valuable experiences.

• Eugene Wei mentioned that Web3 innovators should consider whether their products truly need encryption technology. If the encryption part is removed, would the product experience be significantly different? If the answer is no, then encryption might not be a core part of the product.

• Eugene Wei hopes that Web3 developers can provide different social interaction methods, not just to attract users’ attention. He believes that we can build a higher-resolution social graph and understand our relationships in life in a more detailed way.

Ethereum Social Network

• Li Jin mentioned that there is an opportunity in the encrypted social field to create new products based on entirely new networks, which are not based on interests or real-life but on on-chain economic graphs. These networks can leverage all on-chain information, such as asset ownership and product usage, as the basis for the new network.

• David proposed that Ethereum could be a social network. Although it doesn’t have the appearance or feeling of a social graph like Web2 applications, it is beginning to organize humans in a social context. Li Jin agreed and added that Ethereum, PFP communities, or FWB tokens held in wallets can all be considered as social networks.

• Li Jin believes that Web3 provides an opportunity to create new social networks based on on-chain economic graphs. All on-chain information, such as asset ownership and transaction history, can be leveraged to build new social relationships that reflect users’ real economic activities and interactions.

• Unlike traditional centralized social networks, Ethereum provides a decentralized platform that allows direct user interactions without intermediaries. This decentralized social network can provide higher privacy and security, while also reducing platform monopolies and control. In Ethereum’s social network, token economics play a crucial role, allowing users to participate in social interactions through holding and trading tokens. This token economy can encourage users to engage and contribute more deeply.

• Li Jin believes that the current era provides a unique opportunity for the construction of social products. The new generation of users is dissatisfied with existing social platforms. They no longer settle for passive content consumption; instead, they want to actively participate and contribute. They crave a platform that truly represents their voice and values, rather than being driven by algorithms.

• Li Jin believes that the true promise of Web3 social lies in its inclusivity and diversity. In the world of Web3, different types of creators have the opportunity to succeed, no longer restricted and censored by platforms. Furthermore, Web3 allows the creation of new communities and connections based on real relationships and shared values, rather than algorithms.

Lack of Psychological Ownership in Cryptocurrency Social Networks

• In her article “Psychological Ownership,” Li Jin explores the difference between psychological ownership and legal ownership. Psychological ownership refers to the emotional sense of belonging people have towards something, while legal ownership refers to the legal rights people have over something. Li Jin believes that many cryptocurrency applications lack psychological ownership, which is one of the reasons for their failure.

• Li Jin mentions that psychological ownership is about the emotional connection between users and what they own, which can be strengthened by fulfilling their needs and expectations. In the world of cryptocurrency, although users own tokens, they may not develop a strong affinity for the product. To enhance users’ psychological ownership, developers are advised to encourage users to invest time and effort, provide them with more control, offer in-depth product knowledge, and ensure the product aligns with their self-image.

• Li Jin lists several factors that can enhance psychological ownership:

• User Involvement (IKEA Effect): When users invest time, effort, and energy to create or assemble something, they develop a stronger sense of ownership and attachment. When people personally assemble IKEA furniture, even though machines can accomplish the same task, they develop a special emotional connection to that furniture because they were personally involved in the making.

• Personalized Experience: When users can customize or have decision-making power over a product or service, they feel a stronger sense of ownership. On certain platforms, users can customize interfaces, choose specific features, or adjust parameters, making them feel like the platform is “theirs” and can be tailored to their preferences.

• Education and Training: When users have in-depth knowledge about a product or service, especially its advanced features or hidden characteristics, they also feel a strong sense of ownership. A frequent user who knows many tips and tricks about a software that ordinary users are unaware of feels a closer connection to that software.

• Self-Object Consistency: When a brand, product, or service aligns with a user’s self-image or values, they also feel a sense of ownership. For example, someone who considers themselves optimistic and cheerful may choose a brand that represents happiness and positivity.

• Advantages of Psychological Ownership:

• Increased user loyalty and satisfaction.

• Enhanced user engagement and activity.

• Promotion through word-of-mouth, attracting new users.

• Increased long-term value and lifetime value of users.

Pricing and Psychological Ownership

• In many cases, there is a close relationship between pricing and psychological ownership. When users pay for a product or service, they may develop a stronger sense of ownership because their monetary investment makes them value and care for the product more.

• In the realm of cryptocurrency, users gain some form of ownership by purchasing and holding tokens. Although they have legal ownership over these tokens, they may not develop a strong psychological ownership unless they have a deep emotional connection to the project or community.

• How to increase psychological ownership through pricing:

• Meaningful Pricing: When users perceive the price they pay for a product or service as fair and meaningful, they are more likely to develop psychological ownership.

• Sense of Participation: Allowing users to participate in price decisions, such as voting for the price of a product, can increase their sense of ownership.

• Reward Mechanisms: Providing rewards, such as discounts or tokens, to incentivize user participation and investment can enhance their psychological ownership.

• While pricing can increase psychological ownership, excessively high prices may deter users from purchasing or using a product. Therefore, finding the right price point that attracts users and increases their psychological ownership is crucial.

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