Ordering the Digital Universe: Entropy, Information, and the Future of Web3

Wang Feng’s Lunar New Year’s Eve Conversation with Tim Gong: On Information Ordering, Entropy, and the Future of Web3

Crypto is the currency of machines. Payments between machines require automated, programmable rules as their foundation. When blockchain smart contracts say “code is law”, it’s really talking about the laws and rules that govern machines.

In Conversation:

• Wang Feng — Founder of Element
• Tim Gong — Partner at SIG China

I’ve known Tim Gong for quite a few years, and he’s always struck me as something of a nonconformist among China’s venture capitalists.

I first heard of him during my first entrepreneurial venture in 2007. Back then, SIG China and his name didn’t have the kind of influence they enjoy today — they were far from being as well-known as Sequoia or IDG. But his way of speaking left a deep impression on me. We haven’t talked much over the years, but whenever we met — whether at SIG’s office or at gatherings within our circle — our conversations were rarely serious. Tim tends to joke and banter his way through discussions.

People influence each other. When you’re with someone serious, it’s hard to joke around. But when you’re with someone like Tim, who never seems to take anything too seriously, it’s just as hard to talk about things with a straight face.

In the summer of 2021, after SIG and Sequoia China co-led Element’s funding round, Tim invited me out for drinks with some of his VC friends. By the time I arrived, everyone else had left. Only Tim was still there, laughing and joking as if the night had just begun.

That night, I heard for the first time — and have since occasionally seen online — several of his memorable lines about investing: “Character is more important than competence, EQ is more important than IQ, insight is more important than knowledge, intuition is more important than rationality, courage is more important than brains, and luck is more important than know-how.” He also said, “Make time your business, and trends your friend.”

Reading those words, you’d hardly connect them with someone who holds a Ph.D. in science and engineering from Princeton University.

Looking at Tim’s WeChat Moments, you’d never guess he’s a managing partner at one of China’s top venture capital firms. He rarely posts about investing or technology — instead, his feed is filled with classical music, fine wine, and tea.

This time, though, our conversation was probably the most serious one we’ve ever had — perhaps even a bit esoteric for some. As Tim joked in his self-deprecating way, it was a rare chance to use IQ, knowledge, and brainpower that don’t really matter in investing — to chat about Web3.

There’s no denying it: Tim has always had his own original, deeply reasoned perspective on Web3.

Our conversation took place over WeChat, and I am posting it here.

Wang Feng: As a successful VC from the Web2 era, having this conversation with me about Web3 on the eve of Chinese New Year feels rather fitting. Today, the topics everyone seems to talk about most are AI and Web3, regardless of whether ChatGPT is overhyped or how much of the Web3 concept is just marketing. A unique atmosphere, one particular to the internet technology world, is quietly emerging — as if hinting that the next information age is about to arrive.

From an investor’s perspective, can the success models of the top internet companies over the past two decades be abstracted and summarized? And can those lessons still offer insight for the future?

Tim Gong: Yes, and let me take this opportunity to wish everyone a Happy New Year in advance.

If you look back to the very beginning of the internet, starting with Yahoo, the underlying logic behind the most valuable business models has always been information sorting. In the Yahoo era, “experts” curated and ranked information for everyone — people consumed largely the same content. Google replaced those human experts with algorithms, ranking information based on search keywords. Platforms like Facebook, Twitter, and WeChat began sorting information through the lens of each person’s social relationships.

Then came ByteDance, which took this a step further: algorithms now sort and recommend information according to your personal interests and behavioral history. As I often say, ByteDance achieved the leap from “people seeking information” to “information seeking people”. Whether it’s content finding people, products finding people, or services finding people, it all comes down to sorting and distributing massive volumes of digital information according to specific logics — such as personal interest.

None of this would have been possible without the exponential growth of computing power, the acceleration of communication networks, and the comprehensive digitization of information — what I like to call the first layer of sorting.

In fact, the next generation of internet applications we’re seeing today — from ChatGPT to Web3, even Web5 — are all, at their core, new ways of sorting information.

Wang Feng: The concept of first principles, often cited by Elon Musk, has become popular among tech entrepreneurs and investors in recent years. But your way of analyzing the internet’s business value through the lens of information sorting is particularly intriguing — it’s something worth deeper reflection within our industry, a framework that invites us to examine where we each stand.

From this perspective, an internet company’s ability to manage and innovate in information sorting could well become a key indicator of its overall excellence.

Do you think this kind of value is unique to the internet industry?

Tim Gong: Musk picked up some physics along the way, but my background is actually in the field. Before entering entrepreneurship and venture capital, I majored in physics — earning my Ph.D. in Electrical Engineering (Applied Physics) at Princeton University. At ByteTrade, where I currently serve as chairman, six of our core team members — from the CEO to the CIO — also come from a physics background. So it’s natural for us to analyze the world’s underlying logic through the lens of physics.

In physics, the process of “sorting” is essentially the process of generating negative entropy — or negentropy.

Everything in the physical universe, from the birth of stars to the evolution of life, follows the laws of physics. The same principles quietly govern the human mind and the digital world of information.

Entropy, in physics, is a quantitative measure of disorder. The more random and chaotic a system, the higher its entropy; the more ordered and structured it is, the lower the entropy. In a closed system, entropy naturally tends to increase — systems evolve toward randomness, the state of maximum entropy. To make a system more ordered — to reduce entropy — requires an input of energy.

On a microscopic level, this means arranging matter — particles, atoms, molecules, electrons, DNA, cells, proteins — into specific ordered configurations. Take Earth, for example: the emergence of highly ordered life forms, including ourselves, was only possible because the Sun continuously supplies us with energy and negative entropy.

Let me give a few examples everyone can relate to — to illustrate how entropy and ordering play out in human civilization.

Example 1: Gold

Gold has long served as humanity’s chosen currency and the cornerstone of global finance — not by coincidence, but as a result of natural “sorting”. During a supernova explosion, simple low-order elements near the start of the periodic table form first. Once iron nuclei appear, gold nuclei are created through countless collisions between high-energy neutrons and iron atoms. Because free neutrons don’t exist naturally on Earth, gold can only be artificially produced under extreme conditions — such as in a particle accelerator.

Gold sits toward the end of the periodic table, meaning it is a higher-order element that requires immense energy to form. Chemically stable, non-oxidizing, dense, and malleable, it possesses all the ideal characteristics of a universal medium of exchange — in a sense, nature’s chosen currency. For thousands of years, humans have spent vast amounts of energy extracting and refining gold, shaping it into the bars and ingots that sit in national vaults today. This, too, is a costly process of ordering — one that created the foundation of a stable global financial system.

Example 2: Diamonds

About a century ago, Jewish merchants selected diamonds as an auxiliary store of value. Diamonds represent the most stable and high-order crystal structure known — formed under extreme heat and pressure deep within the Earth or during meteorite impacts. Humans then invest additional energy to mine, cut, and polish them — imposing yet another layer of order. Even the “4C” grading system is, in a sense, a form of human aesthetic sorting.

Example 3: Petroleum

Petroleum is formed when organic matter is transformed deep underground through immense heat and pressure — atoms and molecules reorganized into hydrocarbon clusters. Its combustibility underpins modern industry. Burning oil produces electricity, which is one of the most highly ordered forms of energy — electrons flowing in organized patterns. Electricity elevated human civilization to new heights and remains the fundamental foundation of today’s digital information age.

All these processes — whether natural or human-made — are acts of entropy reduction. Nature and humanity both consume energy to create new forms of order.

So in both the material world and the digital one, my investment philosophy has always centered on the pursuit of negative entropy — the creation and distribution of ordered information.

Wang Feng: After more than two decades of rapid expansion, the major Web2 platforms — both in China and the United States — are now encountering similar social challenges. People are increasingly questioning them over issues such as data monopolies, excessive concentration of power, and violations of user privacy.

Even within the tech community, there’s growing reflection that today’s Web2 giants have, in many ways, strayed from the founding ideals of the World Wide Web — principles like decentralization, freedom of expression, and individual ownership of personal data.

Do you share this view?

Tim Gong: First of all, information itself is a form of negative entropy — the more precise it is, the lower its entropy. In the early days, the information carried by traditional media, products, and services was relatively high-entropy — less precise, less ordered.

The ongoing digitization of information represents an evolutionary process of ordering — a continuous reduction of entropy. When we sort or personalize information through search keywords or user interests, the goal is to deliver more accurate, lower-entropy information to individuals. In other words, it’s a process of distributing order.

Competition among internet companies, then, is essentially a contest of entropy-reduction efficiency — who can lower entropy faster and more effectively with the same amount of energy. Mathematically, you could express this as –dS/dU, the rate at which a company converts energy into commercial value.

However, in the Web2 world, whether it’s people seeking information or information seeking people, all sorting still happens within centralized platforms. When those platforms insert ads into the ranked results, they’re effectively “polluting” the order — increasing the entropy of the information that users receive. In essence, they’re transferring users’ negative entropy — their attention, precision, and value — to themselves. This is why users have grown increasingly dissatisfied with Web2 platforms.

Web2 competition, at its core, is a race in entropy-reduction efficiency. The more efficient a platform becomes, the more “advertising pollution” it can impose. Yet their business model dictates that efficiency gains are used not to benefit users, but to make them tolerate more ads. Users don’t share in the value created by technological progress.

This issue is common to all centralized platforms. For example, even ChatGPT today refuses to answer certain questions according to the will of the platform — and in the future, it may well insert ads or commercial content into its responses.

In information theory, entropy can be calculated using Shannon’s formula, which closely resembles the entropy equation in statistical mechanics. But implementing these ideas in real-world applications is extremely challenging, because information theory intersects heavily with the social and human sciences — fields where the variables are far more complex than in natural science.

These are precisely the kinds of problems we’re studying at ByteTrade Labs.

Wang Feng: Do you believe Web3 can truly address the problems caused by the growing centralization of Web2 platforms? Could you outline what that might look like in practice?

Tim Gong: The core ideal of Web3 has always been individual sovereignty. Most discussions focus on personal data ownership — but based on my earlier analysis, I believe an even more important concept is the right to order one’s own data.

In other words, both storage and computation need to be decentralized.

That’s why we invested in ByteTrade, a company building what we call personal clouds — edge servers fully controlled by individuals. These personal nodes can not only store a person’s data but also process it locally. For example:

• Personal search engines
• Personal subscription systems
• Personal recommendation engines
• Personal large language models

Regarding that last example, it might mean storing personalized prompts or fine-tuned model parameters directly within your own personal cloud.

ByteTrade is fundamentally re-architecting the model of cloud computing. Each user’s node server replaces the platform’s centralized servers. Algorithm providers no longer act as platforms; instead, they submit code directly to users’ nodes. When their algorithms generate value for users, users pay them directly.

This completely flips the traditional model — computation, ownership, and value exchange all move to the edge, owned and governed by individuals.

Wang Feng: Returning to the idea of negative entropy you mentioned earlier — how can this concept be further understood in the context of today’s Web3 ecosystem?

Tim Gong: In essence, the entire Web3 and crypto ecosystem is built on the negative entropy created through information ordering.

Think about what blockchain nodes actually do — their core task is to “produce blocks”. And what does that mean? It’s the act of ordering information before it’s added to the chain.

Bitcoin, for instance, is a digital form of ordering implemented through software. Computing power is used to perform hashing calculations and generate ordered blocks — the process we call “mining”. The enormous energy spent on mining is transformed into digital order — into negentropy — which manifests as Bitcoin itself.

That’s why Bitcoin is often called digital gold. Just as humanity expends energy to extract physical gold and cast it into bars, Bitcoin mining consumes energy to create digital order. And, much like gold in traditional finance, Bitcoin has become the foundational asset of the digital financial and information economy.

Ethereum, by contrast, represents another kind of ordering. Both Proof-of-Work (PoW) and Proof-of-Stake (PoS) involve block-producing nodes ordering the results of smart contract computations. You could say Ethereum is digital oil. The inefficiencies of early L1 and PoW systems resembled crude oil — valuable, but unrefined, with a low “combustion rate”.

The evolution toward Ethereum 2.0 and Layer 2 networks effectively refines that “crude oil” into digital electricity. Users pay Gas fees in ETH to computational nodes — in essence, exchanging ETH for the service of ordering. The circulation of ETH, then, represents the flow of negentropy throughout the system.

I’m a strong believer in the fundamental logic of crypto. That said, the industry’s development so far has been far from ideal. Tokens are all too easy to speculate on, and without proper regulation, the crypto market became prematurely and excessively financialized — long before it delivered meaningful, value-generating applications.

That imbalance is unhealthy, and it’s the reason the industry is now undergoing such a massive shakeout.

Wang Feng: Based on your theory of negative entropy, how do you envision the future of public blockchain ecosystems?

Tim Gong: As we discussed earlier, the circulation of ETH represents the flow of negative entropy. Because Ethereum’s architecture is designed primarily for financial applications, ETH effectively quantifies the negentropy embedded within financial information.

But financial information is only a small part of the broader information universe — and the mission of Web3 is to decentralize the entire information world. Within the blockchain community, the idea of multi-chain or application-specific chains has always existed. Projects like Polkadot and Cosmos are built around that vision, and even Ethereum 2.0 is evolving toward a multi-chain ecosystem.

In such an environment, each chain will have its own native gas token — a unit that measures and facilitates the flow of negentropy within its particular domain. Nodes that provide computation and ordering services are compensated in that chain’s native token.

If the digital world of the future relied solely on cross-chain systems, it would be like a civilization powered by just one form of energy — oil. But just as humanity needs diverse and renewable energy sources, the digital world will require a multi-chain ecosystem.

I believe public blockchains and their utility tokens will continue to flourish in this way — a future where a hundred flowers bloom, each finding its own role, purpose, and form of energy.

Wang Feng: Exactly. The future of Web3 isn’t just about public blockchain technology — it also involves the much-debated utility tokens. Many people still find the concept rather elusive. Could you share your perspective?

Tim Gong: Take our ByteTrade ecosystem as an example — personal cloud nodes and public blockchains coexist in a cooperative relationship. Each personal node belongs to an individual. They don’t need to reach consensus with others or even synchronize data.

Yet these nodes still rely on data and services from others — and they pay for that negentropy using crypto. Some of these personal clouds may even run public blockchain nodes themselves.

In this context, crypto provides enormous value:

• Crypto is the currency of machines. Machine-to-machine payments must be governed by automated, programmable rules. When blockchain smart contracts declare that “code is law”, they’re really describing the laws and rules that govern interactions between machines.
• Fiat currencies are defined by nations, whereas the crypto tokens of multi-chain or application-specific ecosystems are defined by applications. The exchange rates between different cryptos don’t reflect the relative strength of countries, but rather the relative value of negentropy — the ordered information — that each application produces.

In ByteTrade’s personal cloud network, every user’s node contains a crypto wallet. It holds and frequently exchanges tokens from different application chains — constantly trading across ecosystems.

That’s actually why we named the company ByteTrade — because it embodies the idea of value exchange between machines through information.

Wang Feng: Centralized platforms have mature business models that have been proven over many years. That’s why many in the Web3 space tend to regard them as part of the “traditional” economy.

But from a business perspective, how can decentralized networks sustain themselves over the long run?

Tim Gong: The most sophisticated platforms — like Google and ByteDance — perfected the art of correlating ads with users’ keywords and interests. This is, in essence, a form of information ordering: users receive precise information alongside equally precise advertising.

But because ads are driven by the advertiser’s interests, they represent information that increases the user’s entropy. When centralized platforms insert ads into ordered results to generate revenue, they do so at the expense of user welfare. It’s a hidden distortion — an opaque reshuffling that disrupts order and raises entropy for the user.

A more transparent, fair, and equitable business model would be one where networks charge users directly for the services they provide, rather than monetizing their attention.

The crypto industry has already validated this principle. Charging transparent Gas fees or transaction fees in asset trading has proven to be a remarkably effective model.

Within the ByteTrade ecosystem, we’re building decentralized digital asset management tools — peer-to-peer RFQ trading markets, automated trading bots, and more.

We firmly believe that users will willingly pay for products that genuinely create negentropy and deliver real value. That’s a healthier, more direct, and ultimately more sustainable form of commerce.

Wang Feng: Regulation and compliance have always been challenging issues for decentralized systems.

Today, even Web2 platforms face enormous regulatory pressure.

Will this challenge become even more serious for Web3?

Tim Gong: The digital world is built from software — and software, at its core, is the execution of contracts through code.

So, in essence: Code = Execution of Contract = Contract.

When we say “Code is Law”, what we’re really saying is:

Code = Contract = Law.

In the physical world, however, Law exists to enforce contracts — to ensure they are executed.

In the true digital world, that function of law is replaced entirely by code.

The challenge we face today is that digital currencies have been assigned monetary prices by traditional finance, effectively turning them into conventional financial assets. Once profit and loss are involved, we inevitably fall back on the legal frameworks of traditional finance — where law must determine right and wrong.

In other words, digital currencies have been financialized and monetized far too early, long before the underlying software and infrastructure were ready. These issues arise because all digital currencies and trading networks are, fundamentally, software systems.

In reality, only a few — like Bitcoin, which involves no contracts at all, only arithmetic, and Ethereum, with its robust, community-maintained smart contract engine — have software foundations mature enough to handle transactions with real asset properties.

To put it more plainly: 99% of digital currency projects so far have been like alchemy — attempts to turn water into oil or metal into gold. The difference is that, before proving their true value, these “synthetic assets” were already being traded at scale.

Web3 decentralization shifts regulatory and compliance responsibility from centralized platforms to individuals. If individuals are to have data sovereignty and ordering sovereignty, they must also assume legal sovereignty.

As the saying goes:”With great power comes great responsibility.”

At ByteTrade, we’re building tools to help users meet those responsibilities — much like TurboTax helps Americans file taxes lawfully and accurately.

For example, ByteTrade will support voluntary, node-level KYC. U.S. nodes that complete KYC verification will then be able to participate in DAOs, DEXs, and other organizations structured in accordance with U.S. law.

Wang Feng: I’ve heard that you’ve long supported and funded research in the life sciences — particularly studies on cellular aging, death, and cancer.

Can the investment methodology you’ve developed in the internet sector also inform your decision-making in biotechnology?

Tim Gong: The emergence and decay of life are, in themselves, processes of ordering and disordering.

DNA, cells, and proteins are all highly ordered structures — layers of negentropy that gave rise to human beings.

From birth through growth, we continuously draw in energy through food and respiration, using it to organize our bodies according to internal rules — an ongoing process of entropy reduction.

As our organs, blood, and brains begin to age, that order gradually breaks down. Death is simply the return to maximum entropy — a state of complete disorder.

Just last week, after thirteen years of research, a Harvard lab demonstrated in mice that biological sequencing — or ordering — can in fact be accelerated or even reversed.

My alma mater, Princeton University, is home to Professor Cliff Brangwynne, whose research on phase transitions in living cells earned him last year’s Breakthrough Prize in Life Sciences — one of the most prestigious awards in biomedicine, founded by the creators of Google, Facebook, and Alibaba.

Dr. Brangwynne applies principles of physics and chemistry to the study of living cells. His work shows that physical entropy maps beautifully onto biological systems — that the aging of cells is, at its core, an entropy-increasing process. These insights from physics and chemistry provide valuable guidance for understanding and potentially treating diseases rooted in cellular aging, such as ALS, cancer, and Alzheimer’s.

Of course, Web3 might one day intersect directly with the question of digital immortality. Imagine if a person’s immutable, everlasting memories could live on within a ByteTrade edge node — accessible to their friends and descendants through computation.

Harvard geneticist George Church once said that a time may come when, for every single year that passes, scientific progress extends the human lifespan by two years.

That would mean the negentropy we feed into our bodies would exceed the entropy produced by natural aging.

If that happens, the singularity of human immortality — the point where life extension outpaces decay — may well arrive within our lifetime.

Translated from the original interview published by MarsBit News.