labour to capital

December 2022

Labour is trading time for money. Capital is owning assets that generate a return. A lot of people conflate the two. Even Chamath struggled with it:

“It took me a long time to understand the difference [...] The single biggest thing is that we confuse being labour and capital all the time. When I made a lot of money at a bank, or when I was an employee at Facebook, I was well-compensated labour. The biggest transition is one of philosophy, which is for us to understand that that dichotomy exists. And then to ask the question: how does a person who makes their money as labour also start to make money in the form of capital as an owner? And that's a mental shift.”

Wealth comes from assets that earn while you sleep. Labour is always constrained by your time - there’s a linear relationship between what you put in and what you get out, so it can never give you freedom. To get non-linear returns, you need ownership. That means being capital.

Crypto is lowering the barriers to ownership, making it possible for anyone, anywhere in the world, to own a slice of the internet. We’re moving from a strict division between those who trade their time for money and asset owners - namely corporations and the “investing class” - to a coalescence, where everyone can have a stake in the future. Labour can become capital.

There are two waves: (1) ownership of digital assets that are the foundation of on-chain financial and cultural systems, and (2) ownership of protocols that power the next evolution of the web.

Decades from now, we won’t be using the same financial system. International, programmable, internet money solves the fractured, trust-based, and politicised status quo.

At the same time, culture is getting democratised as an investment class for the masses. More of the non-fungible world will continue being tokenised to avail itself of programmability, verifiability, composability, divisibility, security, and portability. Once an asset is tokenised, it’s ownable by anyone.

We’re exiting a world of abundant labour and scarce capital. In crypto, capital is abundant because of permissionless access and the fractionalisation of tokens. Investing capital is becoming the basic unit of economic activity instead of time. In a few years, what you own online will be more important than what you do.

Crypto assets will democratise ownership through something like Balaji’s idea of the DeFi matrix. As more assets (fungible and non-fungible) get tokenised, they’ll be ownable in users’ wallets, traded against each other in pairs, and instantly liquid. In Balaji’s words:

“People don’t understand how big a deal this is. It’s the internet of wealth, the internet of money, and it’s going to be similar to when every newspaper went online, and then Google News came online and indexed them. And suddenly, every newspaper was competing against every other newspaper.”

When everyone can easily store their wealth in assets, trading in and out as needed, cash holdings will probably diminish. We’ll see people holding “minimum necessary cash” and storing most of their wealth in digital assets. Capital will be pervasive.

Data is the newest form of capital. It was equipment and raw materials in the industrial era, then finance over the last hundred years. Now, it’s digital content - code, writing, videos, podcasts, and other media - and the audience that forms around it.

In decentralised networks, creators own their content (with NFTs), their audience (via open systems), and part of the platform (through tokens). Skin in the game incentivises creators to contribute more to the platform because it feeds back to them. The result is more equitable wealth distribution. Rather than waiting till an IPO to buy a share of the network they’ve helped build, by which point most of the upside has been realised, creators can participate from the beginning.

The internet is in transition. Capital is becoming accessible to everyone. As that happens, there’ll be more freedom and equality.