So I'm in New York without a plan. This could be a mistake. Everybody in New York has a plan so I'm just getting in the way; standing at the top of the subway steps in Union Square and trying to decide where to go. This is where it all began. Not in Union Square, of course, let alone on this step. But here in New York City. It's 30 years since a young Jamaican called Clive Campbell or "Kool Herc" began to DJ in the Bronx. The more he played, the more he realised the dancers thrived on the portions of a track when the song faded out and the rhythm section kicked in. So he began to play two of the same record back to back, keeping the rhythm running and the dancefloor busy. And so the breakbeat was born and, with it, hip-hop.

Like following the subway map with my finger, I can trace a line from Herc through the stations of the other founding fathers (DJs all - Marley Marl, Grandmaster Flash and Afrika Bambaata) to the first commercial rap hit (the Chic-driven disco of Rappers Delight by The Sugarhill Gang). From there, I sidestep to KRS One and Run DMC and the founding of Def Jam. Then there's the black radicalism of Public Enemy giving white America the bum's rush and terrifying it in the process, and then a leap across country to the laid-back menace of Ice T and the burgeoning production genius of Dr Dre.

Now I tilt my head back to look at the Manhattan skyline and find myself picturing the two great empires that rose out of Babylon. On my left is Death Row Records, steepling over the west coast in the clumsy hands of former hired muscle Marion "Suge" Knight and personified by Tupac Shakur, the New York-born son of a black activist. On my right is Bad Boy Entertainment, the brainchild of middle-class college kid Sean Combs whose "Puffy" nickname suits him a whole lot more than P Diddy. I think about Bad Boy's frontman, the Notorious B.I.G (or Biggie Smalls), a larger than life ex-crack dealer from Brooklyn. I think about how these empires traded units and traded insults until Tupac was shot dead in Las Vegas in September 1996 and Biggie met the same fate six months later in LA.

In the fall-out after Biggie and Pac, the horrified American media made much of hip-hop's East-West rivalry and it's no coincidence that both artists have shifted many more CDs after death than they ever did alive. After the collapse of these twin Babels (literal for Death Row, metaphorical for Bad Boy which continues to rake it in while unable to escape Big's considerable shadow), hip-hop blew up nationwide as emcees and producers stepped out of the wings from every US town and city: Common from Chicago, Masta P from New Orleans, Missy from Portsmouth, Virginia, Nelly from St Louis, Bubba Sparxxx from rural Georgia and, of course, Eminem from Detroit.

My daydreaming is broken as some burly kid pushes past me. He's white with a sparse Fred Durst goatee. When he turns to meet my eye, I'm smiling for no apparent reason. His face twists in a sneer. "Bitch," he says. Hip-hop has become as all-American as baseball. Or perhaps jazz.

"We call him Yella. He is the best. He rocks the house on the DMX. When he's on the beatbox, he cannot miss. So listen to the beat as he rocks like this." How far can you get from the ghetto? Not much further than a village 10 miles from Chippenham, Gloucestershire. So when are we talking? Let me check the vinyl. OK. The album's called Street Sounds Electro Volume 9. The track is World Class by the World Class Wreckin' Crew. 1985.

It must have been my friend's 14th birthday then. Joss. And yes, he was posh. Posh Joss. His parents owned a rambling country pile and a whole gang of us had bussed out there from the South London burbs. The sound system was set up in the garage (his dad's Jag had been moved on to the gravel drive) and the girls danced in gaggles, nervously sipping cans of Heineken, while the boys lit cigarettes from 10-packs of JPS and argued over the tapes.

The music was diverse, unified only by its 80s mediocrity: a fair dose of Wham and Duran Duran, a dash of Meatloaf, a pinch of The Clash, a sprinkling of Siouxie and the odd soul tune. So what were we wearing? Youth culture was uniquely unfocused: scrawny metallers in Iron Maiden T-shirts rubbed shoulders with fey new romantics, pallid goths, wedge-haired casuals, boys dressed like Madonna and girls dressed like Boy George. We're talking lots of post-Fame leg warmers and pristine Nike trainers (in the days before the swoosh ruled the world); hair spray and black eyeliner gone mad.

As for me, I was confused. My Sunday football team was strictly casual and for the last couple of years I'd been listening to soul boy anthems by the likes of Shakatak and the Fatback Band. But the hip kids at my school were all, believe it or not, into "psychobilly" (think Huey Lewis goes thrash). So my uniform wedge haircut (bleached white at the front, naturally) probably topped off a faux-American baseball jacket (20 quid from Camden market), second hand 501s and a pair of Doc Marten boots. Very cool in a Breakfast Club meets the National Front kind of way.

It was a big night for me. A year after my first snog, I'd just enjoyed numbers two and three (a pair of pubescent blondes whose names have faded despite vivid memories of smell and touch) and I was high on a cocktail of warm lager and half-fulfilled sexual frustration. Then someone - God knows who - dropped in a tape of ... of what? Rap, electro, hip-hop.

I'm listening to it now, that same compilation that I rushed out and bought the following week. Street Sounds Electro Volume 9: it's hard to figure its appeal. Maybe it was the nascent electronica that sounded so much more advanced than John Taylor's bass or maybe its urgency and aggression tapped into the aspirational psychobilly in me. Whatever. I tugged the unwilling blonde (number three) into the middle of the garage dancefloor and began to dance with all the grace and rhythm of a moth around a light bulb. The memory makes me squirm with embarrassment. But it probably makes DJ Yella (the one that "rocks the house on the DMX") squirm too. Back then, the World Class Wreckin' Crew were a bizarre LA outfit who wore shiny suits and their hair in jheri curls. But it was only a couple of years later that Yella graduated to the gangsta-lifestyle, ghetto-celebrity attitude of hip-hop legends NWA. By then hip-hop had changed, Yella had changed and I had changed too.

Hip-hop has proved itself to be unfailingly and intuitively modern. Practically, it was the first musical genre to rely exclusively on technology. Conceptually, it has always understood postmodern irony; sampling the best beats and hooks from everything from old soul tunes to kids' TV. Politically, it has always known that a good soundbite is worth more than a dozen reasoned arguments (whether "fight the power" or "let's get butt-naked and fuck").

But it's in its grasp of commercialism that hip-hop really comes into its own. Long before Nike CEO Phil Knight decided that his company was about brand rather than product (and exported the production base to Asia), hip-hop had taken this idea on board with instinctive enthusiasm. Think about the times you've caught generic rock by a generic rock band on generic rock radio. If you missed the DJ's announcement, you might never know the band's name. But generic hip-hop by a generic rapper on generic rap radio? Within eight bars, he'll have name-checked himself, his crew and probably the street where he grew up. Hip-hop is its own best promotion.

However, for all its modernity, hip-hop was once also anti-modern. Because it was a grassroots, bottom-up expression of who you were and where you came from and its language was arcane and inaccessible to the mainstream. But now? Now hip-hop is the mainstream and its language, both figuratively and literally, is the language of marketing and media. The key signifier of the hip-hop brand is alienation. Originally the music of racial minorities (mostly black but Hispanic too), it inevitably expressed estrangement from mainstream society. Now adolescents the world over consume hip-hop as an expression of what they are (and what they are not).

Whether it's the white kid who calls me a "bitch" as he pushes past me into the subway or the thirtysomething white record exec who once greeted me with the exclamation "Yo, dog!", the cultural dynamic is obvious as white people appropriate black slang for some nuance of black cool. Of course, this phenomenon is as old as pop culture itself, but the growing ubiquity of hip-hop culture and the consequent impact this appropriation has on African-American youth is new and bizarre. Hip-hop slang can grant a white person cultural value within mainstream society at the same time as it bars entry to a black person. "Yo dog," says the white thirtysomething, and he's down with alienation. "Yo dog," says the black kid and he's down and alienated. As alienation has become a commodity to be sold, so alienation continues apace. Little wonder that the cognoscenti's favourite refrain is "hip-hop is dead".

"You want to see real, underground hip-hop in New York?" asks Kenyatta, one half of politically conscious Brooklyn hip-hop crew Black LIB (that's Black Liberation: Let It Begin). "I know one place I've got to take you."

By the time we reach Kenyatta's surprise venue, I've kind of given up. I'm searching for the essence of a culture I love and, in the city of its birth, I find that hip-hop is everywhere. But nowhere, too. I'm disheartened: I've walked the walk, talked the talk and bought the T-shirt, but all that's just ephemera.

The Izzy Bar is on first and 10th. The Lower East Side used to be a rough neighbourhood but, post-Giuliani, it's a gentrified sort of place with restaurants and bars where young uptowners come out to play. These days, then, perhaps it's a perfect hip-hop setting.

The Real Live Show, broadcast live online and to no more than, say, 60 people at the Izzy Bar, is hosted by Malik, aka Dionysos, alongside his crew, The Eclectic Regiment. The band take their places and launch, with no ceremony, into an easy-rolling funk break, embellished with scratches and the occasional improvised snatch of melody. Dionysos takes a mic and assumes the master of ceremonies persona like it's a second skin. He drops into a freestyle rap, an introduction to the show. The room cheers his every lyric; his expertise is astounding. Gradually, other emcees emerge from the audience and the microphones are passed from hand to hand as words and ideas bounce from lip to lip and around the room. Some are awesome; lyrically dextrous and witty, pulling words apart and reassembling them like Plasticene shapes, but every emcee is cheered just the same and the walls are sweating. And suddenly I'm drunk on the essence of hip-hop that first caught me 15 years ago. I want to package it and take it home and show it to my mum so she can see for herself and understand what I've been talking about for all this time.

After the show, Kenyatta and Reggie (his partner from Black LIB) join us and the conversation takes a familiar tack: hip-hop is dead. "I'm gonna have that printed up on a T-shirt," Kenyatta says.

We start talking about hip-hop worldwide; how maybe there are more possibilities internationally than in the US. Reggie says, "I hear that when you go to Japan, if you're a rapper, women just throw themselves at you. Like, just for being an emcee! That's where I wanna go!"

"Right," Kenyatta laughs. "That's what's gonna be on my T-shirt. "Hip-hop is dead." Right across the front. And on the back, "Let's go to Japan."

· Extracted from Where You're At, by Patrick Neate, published by Bloomsbury, £9.99. © 2003 Patrick Neate