What We Know About Web3 So Far

The best article we've seen so far explaining how excited (or not) to be about Web3 - thanks to Thought Leader Tim O’Reilly:

Why it’s too early to get excited about Web3

There’s been a lot of talk about Web3 lately, and as the person who defined “Web 2.0” 17 years ago, I’m often asked to comment.

I’ve generally avoided doing so because most prognostications about the future turn out to be wrong. What we can do, though, is to ask ourselves questions that help us see more deeply into the present, the soil in which the future is rooted. As William Gibson famously said, “The future is already here. It’s just not evenly distributed yet.” We can also look at economic and social patterns and cycles, using as a lens the observation ascribed to Mark Twain that “history doesn’t repeat itself, but it rhymes.”

Using those filters, what can we say about Web3?

Decentralization versus centralization

The term Web 3.0 was used in 2006 by Tim Berners-Lee, the creator of the World Wide Web, as a look forward to the next stage of the web beyond Web 2.0. He thought that the “Semantic Web” was going to be central to that evolution. It didn’t turn out that way. Now people make the case that the next generation of the web will be based on crypto.

“Web3” as we think of it today was introduced in 2014 by Gavin Wood, one of the cocreators of Ethereum. Wood’s compact definition of Web3, as he put it in a recent Wired interview, is simple: “Less trust, more truth.”

In making this assertion, Wood was contrasting Web3 with the original internet protocol, whose ethos was perhaps best summed up by Jon Postel’s “robustness principle”: “TCP implementations should follow a general principle of robustness: be conservative in what you do, be liberal in what you accept from others.” This ethos became the foundation of a global decentralized computer network in which no one need be in charge as long as everyone did their best to follow the same protocols and was tolerant of deviations. This system rapidly outcompeted all proprietary networks and changed the world. Unfortunately, time proved that the creators of this system were too idealistic, failing to take into account bad actors and, perhaps more importantly, failing to anticipate the enormous centralization of power that would be made possible by big data, even on top of a decentralized network.

Wood’s point is that the blockchain replaces trust in the good intentions of others with transparency and irrevocability built into the technology. As explained on Ethereum.org:

Cryptographic mechanisms ensure that once transactions are verified as valid and added to the blockchain, they can’t be tampered with later. The same mechanisms also ensure that all transactions are signed and executed with appropriate “permissions” (no one should be able to send digital assets from Alice’s account, except for Alice herself).

Ethereum.org’s documentation continues:

Web2 refers to the version of the internet most of us know today. An internet dominated by companies that provide services in exchange for your personal data. Web3, in the context of Ethereum, refers to decentralized apps that run on the blockchain. These are apps that allow anyone to participate without monetising their personal data.

Crypto enthusiast Sal Delle Palme puts it even more boldly:

We’re witnessing the birth of a new economic system. Its features and tenets are just now being devised and refined in transparent ways by millions of people around the world. Everyone is welcome to participate.

I love the idealism of the Web3 vision, but we’ve been there before. During my career, we have gone through several cycles of decentralization and recentralization. The personal computer decentralized computing by providing a commodity PC architecture that anyone could build and that no one controlled. But Microsoft figured out how to recentralize the industry around a proprietary operating system. Open source software, the internet, and the World Wide Web broke the stranglehold of proprietary software with free software and open protocols, but within a few decades, Google, Amazon, and others had built huge new monopolies founded on big data.

Clayton Christensen generalized this pattern as the law of conservation of attractive profits: “When attractive profits disappear at one stage in the value chain because a product becomes modular and commoditized, the opportunity to earn attractive profits with proprietary products will usually emerge at an adjacent stage.”

Blockchain developers believe that this time they’ve found a structural answer to recentralization, but I tend to doubt it. An interesting question to ask is what the next locus for centralization and control might be. The rapid consolidation of bitcoin mining into a small number of hands by way of lower energy costs for computation indicates one kind of recentralization. There will be others.

The hype cycle

The Ethereum community’s early writings on the topic offer measured assessments of the trade-offs and challenges ahead for Web3, but most popular accounts today are suffused with hype and the glamor of financial speculation. A recent New York Times article provides a case in point:

Venture capitalists are betting billions of dollars to create what in effect is an alternative world of finance, commerce, communications and entertainment on the web that could radically transform major elements of the global economy—all built on the blockchain technology popularized by Bitcoin.

There follows a litany of investments from crypto backer Andreessen Horowitz in areas from gaming to decentralized finance to NFTs to decentralized social networks. None of the examples in the article focus on the utility of what is being created, just the possibility that...