tags: #publish links: [[Business Strategy and Competition]], [[Software and Tech]], [[Tech Companies]] created: 2022-01-10 Mon --- # web3, speculative bubbles and promises of decentralisation ## What is **web3**? This is not clearly defined. It refers to the trend towards decentralisation, describing *crypto-based decentralised systems that don't require trust*. It broadly describes the new technology and approach that is common to the participants in the vast bubble of investment, speculation and hype in crypto, decentralised finance and decentralised blockchainy anything that is going on merrily as we begin 2022. Gavin Wood (Ethereum) compares web2 to web3 (paraphrasing): In web2, one has to trust the centralised monopoly that delivers the service. In web3, the user can participate in service delivery and trust isn't required. (Unfortunately we're not actually achieving that, currently. See below...) Chris Dixon (Andreessen Horowitz) references this definition from [Packy McCormick](https://mobile.twitter.com/packyM): > Web3 is the internet owned by the builders and users, orchestrated with tokens. Some different angles informing these notes: **Tim O'Reilly**: https://www.oreilly.com/radar/why-its-too-early-to-get-excited-about-web3/ **Gavin Wood**: https://www.wired.com/story/web3-gavin-wood-interview/ **Chris Dixon**: https://future.a16z.com/why-web3-matters/ **Moxie Marlinspike**: https://moxie.org/2022/01/07/web3-first-impressions.html **Scott Galloway**: https://www.profgalloway.com/web3/ ## How does this look compared to other bubbles? Will this "stick"? As both Tim O'Reilly's article and Gavin's interviewer point out, that's all about application/utility, *can we get there from here*, and *cui bono*. Who is going to take advantage of that new opportunity to participate? Few people. Tech and liberties crowd, mostly. Most people don't care in that way. So that doesn't give you traction and network effects, without *also* offering a significant improvement over existing systems. (Interestingly this is key to whether evolutionary forces will retain the decentralisation! See below.) Is something of limited appeal enough to change existing near-universal monopolies and financial systems? Probably not. Who is going to benefit from the wave of investment? Mostly existing early investors - the usual old finance and VC crowd. That is hardly revolutionary on its own. Is the investment producing useful new infra? Who is using it? O'Reilly makes the point - referencing Carlota Perez's in book **Technological Revolutions and Financial Capital** - that in previous bubbles that actually changed the world: - The speculative investment **over-funded vast new permanent infrastructure** that was actually useful and which **led to lasting change in the consolidation phase after the bubble**. - Is the crypto or DAO or decentralised finance or NFT bubble doing that? Or is the investment mostly funding speculation or virtual assets that wouldn't survive a crash? - The bubbles produced useful **innovations that were actually better than the previous ways of doing things**. "Useful" means they were broadly adopted by things well outside a self-referential bubble ecosystem, and allowed making of actual profits rather than bubble-fueled speculative ones. - Is the web3 bubble doing that? Is it clear how new things will interface with (for example) existing financial and legal systems, and how and why they would be broadly adopted? There seem to be precious few examples, and few innovations that are clearly wired into the world outside the bubble - yet a lot of reporting on how much speculative money is being made on bubble asset prices. This does not yet inspire confidence in a substantial shift in how we do things that can outlast the bubble. - **Bubble survivors did not actually require much investment** to get traction and change the world (e.g. Google, Amazon), because what they produced was immediately useful and superior outside the bubble context. - Is this the case now for major web3 participants, or is vast funding producing mostly speculative things valuable only within the bubble? Where's the real-world profitable application that isn't just making money off speculators? - **Not all post-bubble market dominators were created during the bubble** - some simply joined in or pivoted (e.g. Apple). The fact that they wanted to and were able to shows the real-world applicability. My two takeaways from this: - We'd expect to see widespread evidence of this from existing pre-bubble participants if the new approach is really going to change the world, and evidence that they're actually finding lasting value by doing so. - We should not expect a revolution and unseating of all existing participants. If the tech is useful, the new participants aren't the only ones well placed to benefit. There will be some new winners, sure, but also benefit will acrue to many existing monopolies. Any claim that existing participants would be taken down needs to explain how the new approach can totally outcompete existing winners in the real world, and explain how they'd be powerless to participate themselves. ## Will web3 decentralise everything? Short answer: probably *no*, and it's already visibly going in a centralised direction, at least not with 2021's technology set. A good exploration of this is [Moxie Marlinspike's excellent article](https://moxie.org/2022/01/07/web3-first-impressions.html). The conclusion is that web3 is already evolving in a way that simply produces new monopolies, and that this is essentially guaranteed by consumer preferences and evolutionary forces: - **Most people - most web3 service consumers - do not want to run servers**. "Real" decentralisation therefore only extends as far as those few who do. - Web3 crypto tech focuses on the decentralisation of the servers, and **largely neglects to solve the trust problem in the client layer**: wallets, browsers, mobile. Those ephemeral lightweight clients typically cannot, by design, participate in the blockchain as servers. - Decentralised tech is by definition very hard to evolve rapidly, so is **easily outcompeted by web2-style centralised infra** if that offers "better" facilities. - "Better" for most client participants is **"easier to use" or "makes me more money", not "more decentralised freedom"**, because (in Moxie's words) *this movement is essentially a goldrush*. This produces [[Network Effects]] encouraging centralised, rapidly-evolving convenience services around the blockchain, and clients end up connecting to those intermediaries. These intermediaries are less free, because there's little pressure for them to be. The same forces that produced monopolies in web2 will produce monopolies here too. - And they already have! These dynamics have *already resulted* in most Ethereum blockchain interaction being mediated through APIs of a few intermediary companies. These APIs are typically completely lacking in solutions to the trust problem - clients are simply trusting what the servers return, often no crypto or hashes involved. That's... not very inline with web3's claims! Some great specific examples from Moxie: - Many NFT wallets are dependent on single company's database's view of the blockchain. If their API says "doesn't exist", that's the "truth" presented to the user, regardless of what's actually on the blockchain. Hardly a decentralised trustable solution! - NFTs on the block chain are simply unverified URLs. Target server can change what it points at at any time with zero verification, so in practise the target server is a point of centralised control. Large wallet-hosting cryptocurrency exchanges are another example. For users, there's little decentralisation benefit from that. It's just a new central monopoly around a new (and arguably worse) technology. In short, **web3 is already failing to deliver its promises of avoiding monopolies and central points of control, and evolutionary forces will only make that more certain**. Oh and here's [Jack Dorsey on Twitter](https://twitter.com/jack/status/1473139010197508098): > You don't own "web3." > The VCs and their LPs do. It will never escape their incentives. It's ultimately a centralized entity with a different label. > Know what you're getting into... If you want more reasons, just go read this: https://web3isgoinggreat.com/ ## Final thoughts Name a web3 product that isn't also a speculative investment platform. Just saying.