Source: MarsBit
I have known Tim Gong for quite some time, and I have always felt that he is a non-mainstream figure in Chinese VC.
I have heard of him since I started my first business in 2007. At that time, SIG China and his name did not have such influence in the industry, and were far less famous than Sequoia and IDG. But his way of speaking left a deep impression on me. We did not chat very much, whether in the SIG office or at dinner parties in this circle, when Tim and I talked, there were few serious words, mostly jokes and stories.
People influence each other. If you meet a serious person, it is difficult to joke with him too much. However, if you meet someone like Tim who always looks not serious, it is also difficult to talk to him seriously.
One summer in 2021, after SIG and Sequoia China jointly led the investment in Element, Tim invited me to drink with some of his VC friends, and waited for me until midnight. When I went to find him, the people at the table had dispersed. Only Tim was left waiting for me. When I arrived, he was also laughing and chatting with me, and he never forgot to tease. That day, I heard for the first time and occasionally saw a few of his brilliant sentences commenting on investment on the Internet recently: "Being a person is more important than doing things, emotional intelligence is more important than IQ, insight is more important than knowledge, sensibility is more important than rationality, courage is more important than brains, and luck is more important than skills" and "Do the business of time, be a friend of trends." Reading these words rarely associates him with a doctoral student in science and engineering at Princeton University.
In Tim's WeChat Moments, you can't tell that he is the most powerful VC partner in China, because he doesn't talk about investment and technology. He is a fan of classical music, red wine and tea.
This time, it may be the most serious conversation between Tim and me, and it may even be a conversation that some people find obscure. In Tim's self-deprecating words: It's rare to use IQ, knowledge and brains that are not important in investment to talk about Web3. It is undeniable that Tim has always had his own original insights on Web3, built on the underlying logic.
Our chat was done on WeChat, I posted it here.
Wang Feng: As a successful VC investor in the Web2 era, it is quite appropriate for you to talk to me about Web3 on the eve of the Chinese New Year. Today, the most talked-about topics around us are AI and Web3. Regardless of whether ChatGPT is overrated or not, how much of the Web3 concept is marketing? A unique atmosphere in the field of Internet technology is emerging, which seems to indicate to us that the next information age is coming. From an investor's perspective, can the genes of the successful models of leading Internet companies in the past two decades be abstractly summarized? Are these summaries still inspiring for future development?
Tim Gong: Yes, I would like to take this opportunity to wish everyone a happy new year in advance. In fact, since the beginning of the Internet, starting from Yahoo, the underlying logic of the most valuable business model on the Internet has always been the sorting of information. In the Yahoo era, "experts" helped everyone sort, and everyone consumed the same information. Google's search algorithm sorts information according to the keywords of the query. Facebook, Twitter, WeChat sort information according to each person's social relationship. In ByteDance, the algorithm sorts the information according to your own interests and history and recommends it to you. This is what I often say. ByteDance has achieved a leap from "people looking for information" to "information looking for people". "Content looking for people", "goods looking for people" and "services looking for people" are all sorting and distributing massive amounts of digital information according to certain logic (such as interests). The premise for all this depends on computing power, the exponential growth of communication speed and the full digitization of information (primary sorting).
In fact, the next-generation Internet applications we see today, such as ChatGPT, Web3 or Web5, are also innovations in information sorting.
Wang Feng: The first principles that Elon Musk constantly cites have been actively cited by technology entrepreneurs and investors in recent years. However, your point of view of analyzing the commercial value of the Internet from the perspective of information sorting is indeed very interesting. This point is worth in-depth analysis in our industry, and we should look at ourselves in the light of this. From this perspective, the strength of an Internet company's ability to process information sorting and its innovation ability will become an important indicator for judging the excellence of this company. Do you think this value is unique to the Internet industry?
Tim Gong: Musk learned some physics halfway through his career. Before I entered the entrepreneurial and venture capital industry, I also majored in physics. I studied for a doctorate in electrical engineering (applied physics) at Princeton University. Currently, I am the Chairman of ByteTrade. From the CEO to the CIO, six people are physics majors, so we like to use physical principles to analyze the underlying logic of the world. The process of "sorting" is actually the process of generating "negative entropy" in physics.
The real universe, all living things, from the beginning to the end, follow the principles of physics. The human spiritual world and the digital information world also follow the principles of physics silently.
In physics, there is the concept of entropy, which quantifies the concept of "disorder" using the method of physical statistics. Simply put, the more disordered and random the arrangement and combination, the greater the entropy value, and the more ordered or the higher the order level, the lower the entropy value. In a closed system, the system itself will evolve to the most disordered random state, that is, the state with the highest entropy value. Improving the order of a system, that is, reducing entropy, requires energy consumption. From a microscopic perspective, it is to sort a certain substance (particles, atoms, molecules, electrons, DNA, cells, proteins, etc.). For example, the highly ordered higher life on Earth, including us, can evolve because the sun outputs energy and negative entropy to us.
Let me give you some examples that everyone can understand to illustrate the application of entropy and sorting in human society.
The first example is gold. Gold is the currency chosen by human civilization and the cornerstone of the financial world. This choice is not accidental, but the result of sorting. When a supernova explodes, various simple elements with low rankings at the top of the periodic table are formed first. After the iron nucleus is formed, the nucleus of the gold element is formed through countless collisions between high-energy neutrons and iron nuclei. Since unbound neutrons do not exist on Earth, gold cannot be produced by other methods except using huge energy to reconstruct high-energy neutron beams in the laboratory. Gold is ranked low in the periodic table, which means it is high in level and requires huge energy to form. It has low activity and almost exists as a single medium substance. It will not oxidize, has strong flexibility, a medium to high melting point, and a high density. It has the highest characteristics of a tradable currency, so it is the chosen thing. For thousands of years, humans have consumed huge amounts of energy to mine gold from various places on Earth, and gradually formed the gold bars and gold nuggets that are stored in the treasuries of various countries today. This is another energy-consuming sorting process, but this sorting has built a foundation for stable international finance.
The second example is diamonds. More than a hundred years ago, the Jews chose diamonds as an auxiliary financial currency. Diamonds are the most stable and advanced in all crystal structures. Diamonds are also produced by high pressure, high temperature, and high energy consumption inside the earth or after the collision between the earth and meteorites. Humans also consume huge energy in mining and then concentrate it for cutting and polishing, and re-ranking. The 4C standard is also a kind of human aesthetic ranking.
The third example is oil. Oil is a cluster of carbon and hydrogen molecules formed by the rearrangement of atoms and molecules in organic matter deep under the surface of the earth after consuming huge amounts of heat energy. Its flammability is one of the foundations of modern industry, and the purpose of burning oil is to generate electricity. Electricity is an orderly arrangement of electrons, and electrical energy is the most orderly energy, which has elevated human civilization to a new height and is also the most basic foundation of today's digital information age.
All the above processes are a process of entropy reduction. Nature or human life consumes energy and produces new material ordering. Therefore, in the material and digital world, the underlying logic of my investment has always been to pursue the generation (ordering) and distribution of negative entropy (ordered information).
Wang Feng: After 20 years of rapid development, Web2 platform companies are facing similar social problems in China and the United States. People are increasingly questioning them, such as data monopoly, excessive concentration of power, and infringement of user privacy. Even technical elites have begun to reflect that today's Web2 giants have deviated from the original technological doctrine of the World Wide Web, such as good power decentralization, freedom of speech, and protection of personal data ownership. Do you agree with this view?
Tim Gong: First of all, information is a kind of negative entropy. The more accurate the information, the lower the entropy value. The information of early traditional media, goods and services all had relatively high entropy values. The process of digitalization of information is a process of sorting from low to high levels, and it is also a process of reducing entropy. The purpose of sorting information by search keywords or people's interests is to distribute accurate information to individuals and reduce entropy. The competition among Internet companies is to reduce more entropy with unit energy. Then the differential -dS/dU is the quantification of the speed at which they create commercial value.
But in the Web2 world, whether it is "people looking for information" or "information looking for people", the sorting of information is done by centralized platforms. Centralized platforms insert advertisements into the sorting results, which is a kind of "pollution" of the sorting results, increasing the information entropy received by users. In essence, it transfers the negative entropy of users to the platform itself. This is why users are increasingly dissatisfied with Web2 platforms.
The competition among Web2 platforms is a competition of entropy reduction efficiency. The more efficient the entropy reduction service is, the more advertising pollution it can bear. However, their business model determines that the purpose of improving platform efficiency is to make users tolerate more advertising. Users will not benefit from technological progress and efficiency improvement.
This problem is common to all centralized platforms. For example, we have seen that ChatGPT will refuse to answer certain questions according to the will of the platform, and it is very likely that commercial information such as advertisements will be inserted into AI’s answers in the future.
The entropy of information theory can be calculated by Shannon's formula, which is very similar to the entropy calculation formula of statistical mechanics. It is not easy to implement many of the above ideas in these calculations at the application level. Part of the difficulty lies in the fact that information theory involves a lot of knowledge in social and humanities sciences, and its variable parameters are much more than those in natural sciences. These are the topics we are currently researching at ByteTrade Labs.
Feng Wang: Do you believe that Web3 will solve the problems caused by the increasing centralization of Web2 platform companies? It would be better to make a list.
Tim Gong: The ideal of Web3 has always been "personal sovereignty". The most talked about is personal data ownership. However, from my analysis above, I think personal data sorting rights may be more important. In other words, storage and computing must be decentralized.
This is why we invested in ByteTrade. ByteTrade is a "personal cloud", an edge server controlled by individuals. It can not only store personal information, but also perform calculations. For example:
Search Engine for Personal Use
Subscription services for individuals
Recommendation engine for individuals
Large language model for individuals
Regarding this last point, you may need to store personalized model prompts in your personal cloud.
ByteTrade reconstructs the architecture of today's cloud computing. Each user's node server replaces the platform's server. The algorithm provider is no longer a platform, but submits code to the user's node, runs the algorithm, creates value for the user, and then the user pays.
Wang Feng: By the way, can the negative entropy theory you mentioned earlier be further explained in today's Web3 ecological practice?
Tim Gong: In fact, the Web3 and Crypto industries are built on the negative entropy generated by information sorting. The core task of all blockchain nodes is to "produce blocks". What is this doing? It is to sort the information to be put on the chain!
Bitcoin is a digital sorting implemented by software. Bitcoin is "mined" by digitally calculating the computing power and sorting it with hash numbers and blocks. The result of the computing power and energy consumed in mining Bitcoin is the formation of Bitcoin through sorting, which is the same as humans consuming energy to dig gold from all over the world and cast it into gold bars. Therefore, Bitcoin is digital gold, and just like the role of gold in traditional finance, it is the cornerstone of the digital finance and digital information world.
Ethereum is another kind of sorting. Both POW and POS are the sorting of smart contract calculation results by block nodes. Ethereum is digital oil, similar to the oil in the real world. The inefficiency of the L1 and POW eras is very similar to the low combustion rate of unrefined crude oil. The formation of Ethereum 2.0 and L2 gives Ethereum the opportunity to transform itself from digital crude oil to digital electricity. Users use ETH as Gas to pay computing nodes on the network. This is actually using ETH in exchange for sorting services. The circulation of ETH represents the flow of negative entropy.
I fully agree with the basic logic of Crypto. Of course, the development of the Crypto industry is not satisfactory at present. Since tokens are very easy to hype and the industry lacks supervision, the Crypto industry has been financialized too early and too much before it has any valuable applications. This is very unhealthy and is also the reason why the industry is currently undergoing a major reshuffle.
Wang Feng: So, based on this negative entropy theory, how do you view the future of the public chain ecosystem?
Tim Gong: We have said before that the circulation of ETH represents the flow of negative entropy, and the characteristics of the ETH chain determine that it mainly carries financial applications. Therefore, ETH quantifies the negative entropy in financial information.
The financial information in this world is only a small part of the information world, and web3 aims to solve the problem of decentralization of the entire information world. In the blockchain world, there has always been a vision of multi-chain/application chain. For example, famous projects such as Polkadot and Cosmos are based on multi-chain as the core idea. And ETH 2.0 is also moving in the direction of multi-chain. In a multi-chain ecosystem, each chain has its own native gas coin, the role of which is to measure and exchange the negative entropy flow required by the application. Nodes that provide computing and sorting services will receive coins issued on this chain.
If there is only Crosschain in the digital world in the future, it will be like there is only oil as an energy source in the human world. The digital world needs Multichain just as humans need Alternative Energy.
I believe that public chains and their utility tokens will have a flourishing future.
Wang Feng: Yes, the future of Web3 is not just about the public chain technology itself, but also about the controversial Utility Tokens. Many people are still confused about it. Can you elaborate on your views?
Tim Gong: For example, our ByteTrade personal cloud nodes are in a cooperative relationship with the public chain. Personal nodes belong to individuals, and there is no consensus or even information synchronization between them. However, these personal nodes will use other people's data and services, and will use Crypto to pay for other people's negative entropy. Even public chain nodes may run on cloud nodes. Specifically, Crypto provides huge value in this application scenario:
Crypto is the currency of machines. Payments between machines must be based on automated, programmable rules. I think the “Code is Law” in blockchain smart contracts refers to the laws and rules between machines.
Fiat currencies are bounded by country, while multi-chain/application-chain Crypto is bounded by application. The exchange rate between Crypto does not express the relative strength of countries, but the relative value of the negative entropy of application information.
ByteTrade's personal cloud nodes will have the user's Crypto wallet, holding and frequently exchanging tokens of various application chains. This is why we call this company ByteTrade!
Wang Feng: Centralized platforms have mature business models, which have been verified for many years. Therefore, Web3 practitioners regard them as traditional industries. But from a business perspective, how can decentralized networks support themselves in the long run?
Tim Gong: The best platforms such as Google and ByteDance strongly associate advertisements with users' keywords and interests (ranking), allowing users to obtain accurate information and accurate advertisements at the same time. However, advertisements are information that increases entropy for users driven by the interests of advertisers. Centralized platforms insert advertisements into the ranking results to obtain revenue at the expense of the interests of users. It disrupts the ranking in an opaque way, causing entropy to increase for users. A more transparent, just and fair business model should be that the network provides services to users, and the service provider charges users.
The development of the Crypto industry has proven that transparently charging Gas or handling fees in asset transactions is a very good business model. In the ByteTrade ecosystem, we are already building decentralized digital asset management tools, a peer-to-peer RFQ trading market, and automated trading robots, etc. We firmly believe that users will definitely pay for products that generate negative entropy and value.
Wang Feng: Decentralized compliance and supervision has always been a very challenging topic. Today, Web2 platforms are facing huge regulatory pressure. Is the problem of Web3 more serious?
Tim Gong: The digital world is made up of software, and software is the implementation of contracts using programs, so:
Code = Execution of Contract = Contract。
When we say Code is Law, we are actually saying:
Code = Contract = Law。
But in the human world, Law is to Enforce Contract to be Executed. So the role of Law in the real digital world has been replaced by Code.
The current problem is that digital currencies are given the currency price in traditional finance, forming the traditional asset value. Once there is an unfair gain or loss, there will be traditional financial laws to determine right and wrong. Therefore, the problem with digital currencies is that they are too advanced in traditional financialization and traditional monetization, and they are also advanced in traditional asset transactions. These problems arise because all digital currencies and trading networks are software. In fact, except for Bitcoin (no contracts, only addition and subtraction) and Ethereum (a relatively perfect Smart Contract execution software maintained by the community Kaiyuan), the current software foundation cannot withstand or is not suitable for such transactions with traditional asset colors. To use a more popular metaphor: 99% of digital currency projects in the past are like alchemy and water turning into oil for thousands of years, and when the assets such as fake gold and fake oil are refined, they have begun to be traded on a large scale without proving their value.
Decentralized Web3 transfers the responsibility of compliance from the platform to the individual. Since individuals have data sovereignty and sorting sovereignty, they naturally have to bear legal responsibilities. As the saying goes, With Great Power Comes Great Responsibility. Companies like ByteTrade will provide compliance tools, just like tools like TurboTax help Americans pay taxes according to the law.
For example, ByteTrade will support voluntary KYC for nodes. After KYC, US nodes can participate in DAOs or DEXs organized in accordance with US laws, etc.
Wang Feng: I heard that you have been supporting and funding research in life sciences, especially research on cell aging, death and cancer. Can your investment methodology in the Internet field cross over to inform investment decisions in the pharmaceutical field?
Tim Gong: Isn't the birth and death of life a process of sorting? The high-level sorting of DNA, cells, and proteins gave rise to humans. Isn't the growth period of human beings from birth a process of obtaining energy through food and breathing and sorting in the body according to its own rules? It is a process of entropy reduction. This sorting slowly begins to disintegrate as human organs, blood, and brain begin to age, and the final death is a disordered state with the highest entropy value. Last week, after 13 years of hard work, Harvard Laboratory proved in mice that there is an accelerated or reversible mechanism for sorting (Sequence).
Cliff Brangwynne, a professor of bioengineering at my alma mater, Princeton University, won last year's Breakthrough Prize for Life Sciences for his research on "phase transitions of biological cells." This is one of the most influential awards in biomedicine, co-founded by the founders of companies such as Google, Facebook, and Alibaba.
Dr. Brangwynne's work is to study living cells using physical and chemical methods. He revealed that physical entropy can also be well applied to the level of life science. The process of cell aging is a process of increasing entropy. These physical and chemical principles have a great guiding role in our treatment of cell aging diseases such as ALS, cancer, and Alzheimer's disease.
Of course, Web3 also has a direct impact on human immortality - can a person's immutable and everlasting memory one day exist on ByteTrade's edge nodes, allowing friends and future generations' computing programs to access it?
Professor George Church of Harvard University said that there may be a day when scientific development can extend human life by two years for every year that passes. In fact, this means that the negative entropy input into our human body exceeds the rate of entropy increase caused by natural aging. This singularity of human immortality may be in the next few decades!
