State of the union

Web3 promises to decentralize power and value, enabling new modes of community, ownership, and exchange. Yet it remains early days1 for a movement driven more by future potential than present reality. It is definitely one of the more contraversial technologies of the last few years but its worth taking a dispassionate look at the opportunities it presents, and the risks it poses. My aim is to take a balanced perspective, avoiding both overzealous hype and reflexive cynicism, i.e. a state of the union presentation of web3 that tries to steer away the idealogical argumnents. I'm also going to park the issues around environmental impact of proof of work. Not to minimise them, just to keep this focused on the underlying potential, and assuming that the path to proof of stake will at least offer an environmentally sustainable alternative.

What is web3 and why does it matter?

Web3 refers to a hypothesized next phase of the internet built on blockchain, cryptocurrency, and related decentralized technologies. It follows Web 1, the initial read-only internet of static web pages, and Web 2, the read-write social internet of user-generated content and centralized platforms. Some have defined web3 as enabling read-write-own capabilities on a decentralized, tokenized ownership platform.

Idelogically motivated proponents argue that web3 will shift power from large tech companies and governments to users. Rather than controlling and monetizing us through our data and fiat currency, web3 will let us own our digital content, community, and assets. By removing centralized intermediaries (corporate or governmental), web3 supposedly enables peer-to-peer exchange, transparency and FREEDOM!!

As soon as you get into idelogical arguments you get yourself locked into the debate on the virtues of the idealogies themselves. So I'm just plain gonna skip that. Instead, I prefer to think of web32 as enabling 4 key building blocks:

  1. Transfering value peer-to-peer without a centralized authority
  2. Achieving consensus trustlessly
  3. Allowing general distributed computations (not just payments)
  4. Digital scarcity, enabling digital property rights

Together, these expand what we can do online, from payments to verified records, organizations, and digital property. However, web3 today looks more like speculative gambling than a revolutionary paradigm shift. Most activity involves trading crypto assets in pursuit of windfall gains, not conducting new transactions or forging new digital institutions. This focus on getting rich quick over solving real problems makes me uneasy about web3 as an end in itself. Still, dismissing web3 based on some bad actors misses the bigger picture. Underlying technical shifts can take time to reach their full potential, as with the early web. Web3 may follow a similar path from niche experiment to mainstream transformation.

The vision for web3

Web3 enthusiasts spin an alluring vision of the future. They foresee open protocols replacing closed platforms, with users controlling their own data, identity, content, and communities. This decentralization promises to end deplatforming and censorship while diversifying digital experiences beyond a few dominant sites and apps. For creators, web3 could mean retaining ownership rights instead of granting them to platforms like YouTube or Instagram. Their work could have inherent value, designated by unique digital tokens, rather than accruing ephemeral likes and views enriching someone else. Artists could choose to monetize their content or distribute it freely, without intermediaries dictating terms. As Naval Ravikant said:

Why would you have traded your artwork for a few likes, a few hearts on some corporation's platform? That's not a good transfer of value.

Online communities could also self-organize around shared interests rather than corporate platforms. Enthusiasts of niche topics could build enduring spaces beyond the shifting whims of Silicon Valley companies. Member-owned and directed organizations (DAOs) could democratize governance and value distribution. At a deeper level, web3 taps into the human need for identity, reputation, and property rights. Digital artifacts become extensions of our personalities that we can own, control, and exchange. While abstract digital files inherently have zero marginal cost, web3 artificially induces digital scarcity so they can store and transfer value. Our digital identities and creations finally gain protection in this natively digital realm. Ultimately, web3 promises a more decentralized, empowering, and community-driven internet where individuals matter more than institutions. It could enable an explosion of creativity, commerce, and connection not dependent on mega-platforms acting as toll collectors.

Caution about the web3 reality

This vision is certainly expansive - its one of the reasons I like it, it leans in to being novel. But we must take care not to get carried away in hype. As with any new technology, unintended consequences and outright abuse remain high risks. Web3 also has inherent conceptual limitations. Most troublingly, the traction it has gained so far looks eerily reminiscent of a speculative bubble. Bitcoin and other cryptocurrencies have become assets to hoard and trade rather than means of exchange. NFTs are predominantly used to mint digital art and collectibles for short-term windfalls. New coins and applications appear daily, aiming to enrich founders and ride fleeting hype cycles. While decentralization is a rallying cry, money and activity have gravitated to centralized platforms like OpenSea and Coinbase that extract substantial value. Web3 so far seems more driven by greed than ideals. And its libertarian ethos threatens to exacerbate inequalities as the well-resourced gain disproportionate control. There are also inherent conceptual limitations. A core notion of web3 is that we need artificially induced digital scarcity. Yet abundance, not scarcity, has always defined the internet's value. Do we really want to restrain the boundless potential for copying, remixing, and sharing digital works? Web3 notions of identity and property also raise concerns. Attach identity to decentralized protocols, and unintended discrimination based on transaction histories could emerge. Enable self-propagating digital property trades, and you get an ideal environment for scams, misinformation, and hate to spread uncontrollably.

Web3's potential for scamming is like multiplying the 17th century Dutch tulip mania with the mass-market reach of TikTok influencers.

And while web3 claims to enable new community models, it may instead trap users in idealogically-driven echo chambers resistant to outside views. If existing social media can radicalize people and spread conspiracies, inadequately decentralized protocols could be far worse.

Where next?

So how should we make sense of these contradictory perspectives? Web3 clearly contains hazardous ingredients - hype, wealth concentration, echo chambers. But the early web also had spam, scams, and dead ends. What matters is not where we begin but where progress takes us. At the moment web3's ration of genune value to grift seems a bit out of whack. Time will tell where we end up. The blockchain innovations underlying web3 do enable new models of digital exchange, ownership, identity, and organization. Unlocking that potential while avoiding the pitfalls requires patience, ethical responsibility, and inclusive participation. This will determine whether web3 repeats web history or reshapes it. The web's impact emerged slowly then explosively as vision met maturity. Web3 may follow a similar trajectory if its technical possibilities are nurtured responsibly. The invention of intellectual property rights created a huge new boost to GDP out of thin air. Web3 has the same potential.

While skeptical of crypto speculation, I remain open to web3's promise. New paradigms often appear dangerous or impractical at first, their impacts unknowable. The web's potential only emerged through time and broad participation. Web3 may likewise need space to unfold in a more inclusive direction.

Is this the beginning of a new thing? Or is this just another phase in the web and the internet? The very name web3 implies its an evolutionary stage but most of the idelogical conversation in the space implies that it is new and better. A third option is that its a small niche and never breaks out. We will have to wait and see.

  1. I discussed web3 in November 2021 on this podcast episode This article was co-authored by AI based on the transcript of that episode. It represents my views at the time of recording - not necessarily my views now (July 2023) and as such I have dated the article to the time of recording.
  2. I don't know why there isnt a space between web and 3, why it isn't web 3.0 after we insisted on calling it web 2.0 was and why it sometimes gets a capitalised Web3 and other times a lowercase web3. I'm going with web3 for this article.