✋ Your 5 In's #28 - Blockchain Explained, Network Effects With Elon Stans, And Mickey Mouse Clubhouse

Hey Pal,

Late newsletter, but it's a long one. You'll understand network effects, Blockchain, Tesla stans, meritocracy, and Clubhouse after going through it.

Happy Valentine's Day sweety pie subscriber pal.

The value of a network increases proportionally to its underlying userbase. This newsletter is an example of having network effects. It increases in value the more readers it gets. Not just the amount, but the quality of engagement.

Investing - ̷M̷i̷c̷k̷e̷y̷ ̷M̷o̷u̷s̷e̷ Clubhouse

I've always wondered how famous people interact in regular conversation with people. Clubhouse provides the opportunity to eavesdrop on them.

After weeks of seeing tweets about Clubhouse, a subscriber pal sent me an invite to join. I didn't expect much going in, but it's worth the hype.

Here's why:

What's Clubhouse?

Think of it as Omegle, but at scale to hundreds (or thousands) of people. You join into "rooms" of people talking as if they were hosts of a radio show.

You move between conversations (as a speaker or listener) covering a bunch of diverse topics. I left a room full of crypto experts and joined a group of people with insomnia.

Clubs That Are Meritocratic

Meritocracy is a set of rules, rewarding individuals based on dedication rather than status.

Like Twitter, you can easily dominate a Clubhouse room and build a following— as long as you're interesting and have something to say. It's a social media app in audio form.

The app allows users to share nuanced, detailed concepts in conversation. There's no bite-sized 1 minute TikTok-like content or any high-end production. It’s entirely raw and in real-time. You're rewarded entirely on discussions and authenticity.

Network Effects

Clubhouse's Network Effects are growing quick. The app is only available to iOS users and even then, it's through invite only. Despite this friction, the app has gone from a few hundred people to nearly two million weekly users. Entirely through word of mouth. Imagine what will happen once Android users join out of FOMO.

The app's high network effects are dependent on its users.

More users = more rooms = more speakers = more content = more users...

Clubhouse Is TikTok For Venture Capitalists

I now join Clubhouse rooms before looking for podcast episodes when bored. The app's algorithm curates conversations that would interest me rather than searching for endless podcast options myself. It’s the convenience that makes the app so sticky.

Clubhouse’s success is dependent on how refined their algorithm will be. That’s why it reminds me of TikTok.

At its core, the app provides power to creators through meritocracy. Honing their algorithm will give it the stickiness so people keep coming back for more (aka TikTok).

What's This Got To Do With Investing?

For starters, it's backed by one of the most successful Venture Capital firms in Silicon Valley: Andreessen Horowitz. They’ve partnered with the Clubhouse team to broaden its community, product, and business. Not to mention, it's already reached Unicorn status (private startup company valued at over $1 billion).

Don't take my word for it, take theirs:

"We’ve grown faster than expected over the past few months, causing too many people to see red error messages when our servers are struggling. A large portion of the new funding round will go to technology and infrastructure to scale the Clubhouse experience for everyone, so that it’s always fast and performant, regardless of how many people are joining."

Yes, it's a startup that will have many obstacles before arriving at the big boy table with Facebook, Twitter, and TikTok. Yet, Clubhouse's potential is high enough to get them a seat. Their journey within the next few years is worth looking out for.

Although I discussed the problem blockchains solve a few months ago, I never really explained how it works. This is a good time to do so since DeFi is a pioneer use case for Blockchain (after Bitcoin).

Blockchain is a decentralized database. We know what decentralized means from last week's newsletter:

If the above criteria is met in a multiple (consensus) manner—away from single (centralized) methods, the system is decentralized.

Blockchain Explained:

Blockchain is a public database updated and shared across multiple computers in a network. Like the name suggests, it’s made up of “blocks” and “chains”:

Data is stored and verified in sequences known as “blocks”. Each successful transaction adds a block to the “chain”, which is a cryptographic reference to previous legit transactions.

You cannot transact data unless it’s successfully stored in a block and added to the chain. Altering a block’s data would require changing all subsequent blocks in the chain. For that to happen, you’d need a majority consensus of the entire network.

This is why it’s difficult to hack something like Bitcoin. You’d have to control a minimum of 50% of the nodes before even attempting to alter Bitcoin’s code. That’s the type of security blockchain promises. A database built on trust and consensus rather than central control.

As for technical aspects of blockchain, I have no clue. Hopefully we get a clear picture after seeing more blockchain applications. I'll continue breaking it down next week.

Inbox - The Rushil 2 Cents Website

After months of stalling, I finally built a website to display some of my work. It's entirely aesthetic:

The site will get updated regularly and will serve as an archive for newsletters, ideas, and essays. Check it out and let me know what you think.

rushil