Interlocutors: Wang Feng, founder of Element, Tim Gong, partner of SIG China
Organized by: MarsBit
I have known Tim Gong for a long time. I always think he is a non-mainstream figure in Chinese VC.
I've heard about him since I first started my business in 2007. At that time, SIG China and its name did not have such influence in the industry, far less famous than Sequoia and IDG. But the way he spoke really impressed me. We don't have a lot of chats. Whether in the SIG office or in this circle for dinner and gatherings, when Tim and I talk, there are not a few serious words, mostly jokes and jokes.
People influence each other. If you meet a more serious person, it is difficult to joke with him too much. However, when you meet someone like Tim who always seems to be not very serious, it is difficult to talk about things with him in a serious manner.
One summer in 2021, after SIG and Sequoia China jointly led the investment in Element, Tim asked me to drink with some of his VC friends and waited for me until twelve o'clock at night. When I went to find him, the people at the wine table had dispersed. Only Tim was left waiting for me. When I arrived, he also chatted with me with a smile, and he never forgot to tease me. I heard for the first time that day, and I occasionally saw a few paragraphs of his investment comments on the Internet recently: "Being a person is more important than doing things, EQ is more important than IQ, knowledge is more important than knowledge, sensibility is more important than rationality, and courage is more important than brains." Important, luck is more important than doorway" and "time business, a friend who becomes a trend". Reading those words rarely connects him to a PhD student in science and engineering at Princeton.
In Tim's WeChat circle of friends, you can't tell that he is in charge of the best VC partner in China, because he basically doesn't talk about investment and technology. He is a lover of classical music, wine and tea.
And this time, it's probably the most serious conversation Tim and I have ever had, and it might even be a conversation that some people find obscure. In Tim's self-deprecating words: It is rare to talk about Web3 with IQ, knowledge and brains that are not important in investment. It is undeniable that Tim has always had his own original views on Web3, built on the underlying logic.
Our chat was done on WeChat, and I posted it.
Fred Wang: As a successful VC investor in the Web2 era, it is really appropriate to talk to me about Web3 when Chinese New Year's Eve is approaching. Today, the most talked about topics around us, besides AI is Web3, and no matter whether ChatGPT is overrated or not, how much of the Web3 concept is a marketing component. A unique atmosphere in the field of Internet technology looms, which seems to indicate to us that the next information age is coming. From an investor's point of view, can the genes of the successful models of top Internet companies in the past two decades be abstractly summarized? Are these summaries still inspiring for future development?
Tim Gong: Yes, I also take this opportunity to wish everyone a happy new year in advance. In fact, from 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 era of Yahoo, "experts" sorted all people, and everyone consumed the same information. Google uses the search algorithm to sort the information according to the keywords of the query. Facebook, Twitter, and WeChat sort information based on each person's social relationship. When it comes to ByteDance, the algorithm sorts the information and recommends it to you based on your own interests and history. This is what I often say. ByteDance has achieved a leap from "people looking for information" to "information looking for people". "Content finding people", "commodity finding people" and "service finding people" are all digital The information is sorted according to a certain logic (such as interest) and then distributed. The premise of all these realizations depends on computing power, exponential growth of communication speed and sufficient digitization of information (primary sorting).
In fact, the next-generation Internet applications we see today, such as ChatGPT, such as Web3 or Web5, are also innovations in information sorting.
Fred Wang: The first principles that are constantly cited by Elon Musk 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 worthy of in-depth analysis in our industry, and we should check ourselves in. From this point of view, an Internet company's ability to process information and its ability to innovate will become important indicators for judging the company's excellence. Do you think this value is unique to the Internet industry?
Tim Gong: Musk learned some physics as a monk. Before I entered the entrepreneurship and venture capital industry, I also majored in physics. I was studying for a Ph.D. in electrical engineering (applied physics) at Princeton University. At present, I am the chairman of ByteTrade. From the CEO to the CIO, there are six people who have studied physics, so we like to use the principles of physics to analyze the underlying logic of the world. The process of "sorting" is actually the process of generating "negative entropy" in physics.
In the real world of the universe, all living things follow the principles of physics from the beginning to the end. The human spiritual world and the digital information world are also silently following the physical principles.
There is a concept of entropy in physics, and entropy is the quantification of the concept of "disorder" by means of physical statistics. Simply put, the more disordered and random the combination, the greater the entropy value, and the more ordered or the higher the sorting level, the lower the entropy value. In a closed system, the system itself will evolve to the most disordered random state, which is the state with the highest entropy value. However, improving the order of a system, that is, reducing entropy, requires energy consumption. From a microscopic point of view, it is to sort certain substances (particles, atoms, molecules, electrons, DNA, cells, proteins, etc.). For example, highly ordered higher life including us can evolve on the earth because the sun has exported energy and negative entropy to us.
Let me give a few examples that everyone understands 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 low-order elements at the forefront of the periodic table are formed first. After the formation of the iron nucleus, the gold element nucleus is formed through countless collisions between high-energy neutrons and iron nuclei. Since uncombined neutrons do not exist on the earth, gold cannot be produced by recreating high-energy neutron beams with huge energy in the laboratory. Gold ranks lower in the periodic table, that is, it has a high level, and it requires a huge amount of energy to form. Its activity is very low, and it almost exists as a single medium substance. It will not oxidize, has strong flexibility, upper-middle melting point, high density, and has the characteristics of the highest circulation currency, so it is a natural choice. For thousands of years, human beings have spent huge amounts of energy mining gold from various places on the earth to form today's gold bars and nuggets in the treasuries of various countries. This is another process of energy-consuming sorting, but this kind of Sorting forms the basis for a stable international finance.
The second example is diamonds. More than a hundred years ago, the Jews chose diamonds as an auxiliary financial currency. Diamond is the most stable advanced order in all crystal structures. Diamond is also the high pressure and high temperature produced in the interior of the earth or after the collision between the earth and meteorites, and high energy consumption produces an advanced order. Human mining also consumes a huge amount of energy, then concentrates cutting, polishing, and sorting again. The 4C standard is also a kind of human aesthetic sorting.
A third example is oil. Petroleum is a hydrocarbon molecular cluster formed by the reordering of atoms and molecules of organic matter in the deep layer of the earth after consuming huge 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 electric energy is the most orderly energy, thus raising human civilization to a new height, and it is also the bottom cornerstone of today's digital information age.
All human sorting in the above process is a process of entropy reduction, and nature or human life consumes energy to produce new material sorting. Therefore, in the material and digital world, the underlying logic of my investment has always been in pursuit of the generation (sorting) and distribution of negative entropy (ordered information).
Wang Feng: After experiencing great development in the past 20 years, Web2 platform companies have encountered some similar social problems in China and the United States today. People are increasingly questioning them, such as data monopoly, over-centralization of power, and violation of user privacy. Freedom of expression and protection of personal data ownership. Do you agree with this point of view?
Tim Gong: First of all, information is a kind of negative entropy, and the more accurate the information, the lower the entropy value. The information of early traditional media, goods and services all had relatively high entropy. The digitization process of information escalation is a sorting evolution from low-level to high-level, and it is also a process of entropy reduction. The purpose of ranking information by search keywords or people's interests is to distribute accurate information to individuals and reduce entropy. The competition of Internet companies is the competition of reducing more entropy with unit energy. Then the differential of -dS/dU is the quantification of their speed of creating commercial value.
But in the Web2 world, whether it is "people looking for information" or "information looking for people", the sorting of this information is done by the centralized platform. The centralized platform inserts advertisements into the ranking results, which is a kind of "pollution" to the ranking results and increases 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 the Web2 platform.
The competition of the Web2 platform is the competition of entropy reduction efficiency. The more efficient entropy reduction service can afford more advertising pollution. However, their business model determines that the purpose of improving platform efficiency is to allow users to tolerate more advertisements. Users do not benefit from technological progress and increased efficiency.
This problem is common to centralized platforms. For example, we have seen that ChatGPT will refuse to answer certain questions according to the will of the platform. In the future, it is very likely that commercial information such as advertisements will be inserted into AI's answers.
The entropy of information theory can be calculated by the Shannon formula, which is very similar to the entropy calculation formula of statistical mechanics. How to implement many of the above ideas into these calculations at the application level is not easy. Part of the difficulty is that information theory involves a lot of social and human science knowledge, and its changing parameters are much more than those of natural science. These are topics that we at ByteTrade Labs are currently working on.
Fred Wang: Do you believe that Web3 will solve the problems caused by the increasing centralization of Web2 platform companies? Better to make a list.
Tim Gong: The ideal of Web3 has always been "individual sovereignty". One of the most talked about is personal data ownership. However, from my analysis above, I think that personal data sorting rights may be more important. In other words, all deposits and calculations must be decentralized.
That's why we invested in the company ByteTrade. What ByteTrade does is a "personal cloud", an edge server controlled by individuals. It can not only store personal information, but also calculate. for example:
- Search engines for individuals
- Subscription Services for Individual Services
- A recommendation engine for individuals
- Large Language Models Serving Individuals
Regarding this last point, it may be necessary to store personalized model prompts (Prompt) in the personal cloud.
ByteTrade reconstructs the architecture of cloud computing today. Each user's node server replaces the platform's server. The algorithm provider is no longer a platform, but submits the code to the user node, runs the algorithm, and after creating value for the user, the user pays.
Wang Feng: Having said that, can the negentropy theory you mentioned earlier be further explained in today's Web3 ecological practice?
Tim Gong: In fact, the industry of Web3 and Crypto is built on the negative entropy generated by information sorting. The core task of all blockchain nodes is to "produce blocks". What are they doing? It is sorting the information to be uploaded to the chain!
Bitcoin is a digital sorting implemented by software. By digitally calculating computing power and sorting hash numbers and blocks, bitcoins are "dig out". The result of the computing power and energy spent on digging bitcoins is to form bitcoins through sorting, which is the same as human beings consume energy to mine gold from various places and cast it into gold nuggets. Therefore, Bitcoin is digital gold, just like the role of gold in traditional finance, it is the cornerstone of digital finance and digital information world.
Ethereum is another kind of sorting, POW and POS are both the sorting of the calculation results of the smart contract by the block node. Ethereum is digital oil, similar to real-world oil. The inefficiencies of the L1 and POW era are very much like the low burn 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 ETH for sorting services. The circulation of ETH represents the flow of negative entropy.
I very much agree with the basic logic of Crypto. Of course, the development of the Crypto industry is not satisfactory at present. Because Tokens are very easy to hype, and the industry lacks supervision, the Crypto industry has been prematurely and excessively financialized before it has value applications. This is very unhealthy, and it 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 see the future of the public chain ecology?
Tim Gong: We said earlier 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. So what ETH quantifies is the negative entropy in financial information.
The financial information in this world is only a small part of the information world, and what Web3 needs to solve is the decentralization of the entire information world. In the blockchain world, there has always been a vision of multi-chain/application chain, such as Polkadot, Cosmos and other famous projects are based on multi-chain as the core idea. And ETH 2.0 is also developing in the direction of multiple chains. In a multi-chain ecosystem, each chain has its own native Gas coin, which is used to measure and exchange the negative entropy flow required by this application. Nodes that provide computing and sorting services will receive coins issued on this chain.
If there is only Crosschain in the future digital world, it is like oil is the only energy source in the human world. The digital world needs Multichain just as humans need Alternative Energy.
I think the public chain and its Utility Tokens will have a bright future.
Wang Feng: Yes, the future of Web3 is not only the public chain technology itself, but also the controversial Utility Tokens. Many people are still looking at the flowers in the fog, you can expand and talk about your own views.
Tim Gong: For example, our ByteTrade personal cloud node is in a cooperative relationship with the public chain. Individual nodes belong to individuals and there is no need for consensus or even synchronization of information between them. But these personal nodes will use other people's data and services, and will use Crypto to pay for other people's negative entropy. Even the nodes of the public chain may run on the cloud nodes. Specifically, Crypto provides great value in this application scenario:
- Crypto is the machine's currency. Machine-to-machine payments are based on automated, programmable rules. I think the "Code is Law" (Code is Law) mentioned in the blockchain smart contract refers to the laws and rules between machines.
- The legal currency is bounded by the country, while the Crypto of the multi-chain/application chain is bounded by the application. The exchange price between Crypto does not express the relative strength of the country, but the relative value of the applied information negentropy.
ByteTrade's personal cloud node will have the user's Crypto wallet, which holds and often exchanges Tokens of various application chains. That's why we call this company ByteTrade!
Wang Feng: Centralized platforms have a mature business model, which has been verified for many years. Therefore, Web3 practitioners regard them as traditional industries. But from a business point of view, how can a decentralized network support itself in the long run?
Tim Gong: The best platforms such as Google and Byte strongly associate (sort) advertisements with users’ keywords and points of interest, so that users can obtain accurate information as well as accurate advertisements, but advertisements are based on advertisers. The interest-driven information that increases entropy for users. The centralized platform inserts advertisements in the sorting results, and the method of obtaining income is to partially sacrifice the interests of users. It opaquely messes up the ordering, causing an increase in entropy for users. A more transparent, just and fair business model should be that the network provides services to users, and the service charges users.
The development of the Crypto industry has verified that it is a very good business model to transparently charge Gas or handling fees in asset transactions. 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.
Fred Wang: Decentralized compliance and supervision has always been a very challenging topic. Today, Web2 platforms are facing enormous regulatory pressure. Is this problem more serious in Web3?
Tim Gong: The digital world is made up of software, and software uses programs to implement contracts, so:
Code = Execution of Contract = Contract.
When we say Code is Law, we are actually saying:
Code = Contract = Law.
But the Law of the human world 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 the digital currency is given the currency price in traditional finance, forming a traditional asset value. Once there are unfair gains and losses, there will be a traditional financial Law to judge right or wrong. Therefore, the problem of digital currency is that it is too advanced in traditional financialization and traditional monetization, and it also advances in traditional asset transactions. These problems arise because all digital currencies and transaction networks are software. In fact, except for Bitcoin (no contract, only addition and subtraction) and Ethereum (perfect Smart Contract execution software maintained by the community open source), the current software foundation cannot bear or is not suitable for such traditional asset-colored transactions. To use a more popular metaphor: 99% of digital currency projects in the past are like alchemy and water-to-oil for thousands of years, and when fake gold and fake oil-like assets have not proved their value, they have already started large-scale deal.
Decentralized Web3 moves the responsibility for compliance from the platform to the individual. Since individuals have data sovereignty and sorting sovereignty, individuals naturally have to assume legal responsibilities. The so-called With Great Power Comes Great Responsibility. And companies like ByteTrade will provide compliance tools, just like tools like TurboTax help Americans pay taxes according to law.
For example, ByteTrade will support voluntary KYC of nodes. After KYC, American nodes can participate in DAO or DEX organized according to the laws of the United States.
Wang Feng: I heard that you have been supporting and funding life science research, especially research on cell aging, death and cancer. Can your investment methodology in the Internet field cross-border inform investment decisions in the medical field?
Tim Gong: The emergence and extinction of life is not a sequenced process. High-level sequencing of DNA, cells, and proteins produced human beings. Human beings go through the growth period from birth, why not obtain energy through food and breathing, arrange in the body according to its own rules, and it is a process of entropy reduction. This sort begins to disintegrate slowly as human organs, blood, and brain begin to age, and the final death is a disordered state with the largest entropy value. Last week, after 13 years of hard work, the Harvard laboratory proved that there is an accelerated or reversible mechanism for sorting (Sequence) in mice.
Cliff Brangwynne, a professor of bioengineering at my alma mater, Princeton University, won last year's Breakthrough Prize for Life Sciences (Breakthrough Prize) for his research topic "Phase Transition of Biological Cells". This is one of the most influential awards in biomedicine, co-founded by the founders of Google, Facebook, Alibaba and other companies.
Dr. Brangwynne's work uses physicochemical methods to study living cells. He revealed that entropy in physics can also be well applied in the life sciences. The process of cell aging is a process of entropy increase. These physical and chemical principles have a great guiding effect on our treatment of cellular aging diseases such as ALS, cancer, and Alzheimer's disease.
Of course, Web3 also has a direct impact on human immortality - can personal memories that cannot be tampered with and never disappear one day be able to exist in ByteTrade's edge nodes and be accessed by friends and future generations' computing programs?
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 passing year. 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!
