Web3 has been a very fashionable term this year, mostly for the alt-finance cartoon characters and tech world’s ultrasophisticated twitter-thread authors.
It was one of the two cheat code phrases that you could use in 2021 to bypass the critical thinking of LPs when raising your first ever fund, with the other being “metaverse”. Congrats, you now have one billion dollars to deploy because you learned the trendy words and you went to a good school, glhf.
Despite the deluge of undistinguished thinkpieces issued by the dominie of the day, nobody really agrees what web3 actually even is. Depending on which tribe you belong to, web3 is a scam, web3 is the future, web3 is tokenizing the world, web3 is VC exit liquidity, web3 is just another name for crypto, you get the idea. Even the crypto community can’t make their mind up on whether Bitcoin is web3.
If nobody really agrees on what web3 is, and the term only really rose into buzzword circulation over the last half a year, I think it’s fair to conclude that web3 doesn’t really exist yet. And yet, clearly, there are a lot of ideas and experiments circulating on converging topics that are inciting inspiration, creativity or outright dismay amongst observers.
What is the point of web3?
In an attempt to avoid embracing this dispute’s futility, instead it might be more useful to think about what web3 could be? Do we even need to move on from web2? What is web3 solving?
There are two topics that I think are important themes:
Decentralization of power — There is increasing mistrust in concentrated power. Whether it is government, central banks, or global omegatech corporations that have become more powerful than nations. The trend of deplatforming, behavioural mandates and censorship has created new interest in building trustless and censorship-resistant platforms that can empower ordinary people and fractionate existing power structures.
Ownership of value — With Web2, the web changed from “read” to “read and write”. The web became social and participative; the age of user-generated content began. Modern tech companies host content sourced from users and then monetize it privately. They exploit our desire for social interaction and compound them with addictive product-patterns, interweave adverts and extract all of this user-generated value for shareholders. By the time you’re able to to become a shareholder in these companies, they’re already valued at multiple billions and insiders already got rich.
An open and equitable web
I understand the excitement of proponents.
An idealised future web might be able to address these issues in a way that not just contributes in a positive way to these social issues, but also enables founders with powerful growth and retention tools to compete with incumbents.
We could build a web where users are able to share in the value that they create and supercharge adoption. One where techgod majority rulers don’t decide what we’re allowed to talk about or how many adverts we have to look at every day.
Perhaps it can empower regular people who have spent thousands of hours acting as batteries for big companies, their attention harvested into profits for private shareholders.
Maybe the web can become more cooperative instead of extractive.
Ponzification of everything
Probably even moreso, I understand the fear of critics.
A pessimistic future web might be littered with tokenised microtransactions seeking rent on all possible user actions, needing users to own native tokens to properly operate their toaster.
It might be a web built on selling worthless ERC20s to retail investors to fund failing projects and extracting value much more directly than spending years selling adverts.
And it could be a web with fewer tools to deal with harassment or evils like child abuse content. Online crime becomes more difficult to prevent.
Perhaps the financialisation of everything benefits only sophisticated algorithmic hedge-funds and gigantic early megaVCs that became majority owners of these tokens in private seed rounds.
Which way to go?
If you’re able to imagine both a pleasant future and a dystopian future, I wouldn’t blame you for expecting the worst one to be the most likely to become reality. Modern businesses have evidently often made the web more…. annoying. Cookie permissions, gdpr requests, banner ads, paywalls, lootboxes and pay-to-play or pay-to-win — it is easy to expect suboptimal or anti-user changes.
And if you look externally into crypto, outsiders can’t really be blamed for seeing things that look extremely similar to scams. Wealth effect has driven exuberance and arrogance amongst market participants, and the self-referential ironic nature of crypto culture is alienating to non-natives.
I get it. The past sucked sometimes and the present sucks sometimes, so the urge to reject ideas that you can poke theoretical holes in is potent. You don’t have to think very hard to imagine ways decentralised systems could be exploited, and you don’t have to look very far to find examples of regular people being exploited by token projects.
But at the same time, you don’t have to look far to see the power of ownership and self-autonomy in existing owner-operated systems.
Bitcoin moved from “darkweb drug money” to an institution-grade store of value asset in the space of a decade without a central authority to guide it.
Ethereum evolved from from “techbro ponzi scheme” to a massive owner-operated network that transactions multi-billions in value daily.
Businesses, users and third parties contributed to creating incremental value for both of these networks and the reward was shared amongst them for doing so. Anyone could participate and value could accrue back to them, instead of only accruing to founders or financiers.
Even purely fun social consensus projects like ConstitutionDAO could perhaps be an example of user-generated value creation shared amongst all. The DAO became worth more despite failing to secure the constitution, and that value accrued back to the participants.
Perhaps this shared ownership can be a forcing function to break existing conventions on how tech companies can or should operate.
Inequality
The rise of inequality has become increasingly evident. During the pandemic, asset prices skyrocketed and the already rich got richer. Meanwhile, small businesses struggled and the working class virtually instantly spent their stimulus cash. Apparently over 50% of Americans have less than 3 months worth of emergency savings.
Wage growth has been virtually stagnant but the cost of a home is up over 400% over the last 40 years. People have started to feel stuck in a system rigged against them with the chance to afford the future they want rapidly slipping away.
No wonder there has been a rise in RobinHood retail options traders and Dogecoin buyers. Lottery-ticket style investing has become a viable option to people that don’t see a path to their financial goals through saving and investing.
Perhaps a more socialistic model of equity or token ownership can act as capitalism’s answer to a Universal Basic Income. Instead of the state printing a bit of cash for families, taxing future generations to pay the current one, maybe people sharing in the wealth they generate can create a more equitable world.
If users vote with their wallets by choosing companies that will let them be rewarded for the value creation that they already participate in, these companies will discover huge network effect tools to grow quickly and unseat incumbents. Real people could opt to own some of the value they collectively created, instead of forfeiting it all to founders and investors.
If all else were equal, a user offering two identical services would be incentivised to use the one where value accrued back to them.
Immaculate conception
When Bitcoin was created, it was another immaculate conception. Satoshi delivered what may prove to be one of the most important creations in history to the world on fair terms for all to participate. They didn’t take a share of coins privately, nor give any to private investors. They mined their own coins on terms that were equal to all other participants. Yes, they mined millions of coins because they were early, but they had no extra advantage over anyone else that learned about Bitcoin.
When Ethereum was created, they premined coins and held an open free-for-all ICO. They sold 60,000,000 ETH to any one that wanted to participate. Ethereum was sold for around $0.30 per ETH. Ethereum founders did keep some coins for themselves and for the Ethereum foundation. Vitalik, founder of ETH and the single largest premine recipient, received less than 1% of the entire supply of ETH which is a pretty small ownership share when compared to traditional equities.
While Ethereum’s inception was slightly less “fair for all” when compared to Bitcoin, it still had a relatively fair and open participation model. Through 2017, ICOs replicated this model, but started to be degraded with pre-sales and private sales to insiders.
By 2018/19, free-for-all fair terms for participants became a thing of the past. The SEC enforced against ICO projects in an attempt to protect retail investors. Regulatory pressure and lack of clarity led crypto-builders to raise privately from VCs instead of the general public. It stopped being possible for non-insiders to buy on the early, cheap terms that VCs were now able to purchase at.
You can focus on the trend of a free-for-all fair-launch network with no founder rewards transitioning to VC-funded privatised gains with large founder allocations and be extremely pessimistic. It appears the purity and beauty of Satoshi’s creation has been corrupted by the greedy.
But the truth is that crypto is just popular now. When Bitcoin was launched, it was less obvious to many that crypto may have value. Bitcoin proved that it could. Ethereum compounded that belief. Charts going up only for ten years attracted a lot of risk-seeking capital.
When Satoshi launched Bitcoin, mining difficult was so low that people were able to mine 50BTC block rewards with solo PCs. The undiscovered nature of Bitcoin made it a hobbyist’s fair launch, not a hedge fund playground. If a project tried to launch in the same manner today, the already-rich would simply take over all of the hash and accumulate all of the coins, paying electricity providers for a share in this new project. In such an environment, founders may as well just sell to them directly and secure long-term funding.
I would prefer open sales available to all on the same terms, but understand that founders don’t want to risk unnecessary regulatory headaches and therefore dealing with professional investors is easier and lower overhead generally. Not to mention the vectors for abuse and that most 2017 ICOs went to zero.
Does it matter if some people get rich while building the future?
I don’t think anyone will argue that Vitalik does not deserve to own 0.7% of ETH’s supply for his contributions to Ethereum. I don’t think anyone would argue that Satoshi’s 1M coins were unfairly mined.
And yet it is impossible to ignore the irony in the largest proponents of web3 being historically successful venture capitalists. Yes, no surprise that these entities are attempting to become the super-financiers of this apparent utopian shared Community-Owned Economy by buying a majority stake in discounted seed rounds.
It’s also impossible to ignore cash-grab founders and investors have exploited existing market dynamics to create ponzinomic-style bull market projects to enrich themselves.
Thus, I think four things are true:
There is consensus that founders getting rich when they create huge value in the world is deserved and expected.
There is rough consensus that VCs or angel investors that fund something early are providing a service and should be rewarded for that when what they funded creates huge value in the world.
Many people believe these funding opportunities should be open and fairer, rejecting existing accredited investor rules as excessively parental or counter-intuitive (yay, now we get to buy the top from VCs!).
Everybody absolutely fucking hates it when founders or VCs get rich from something that does not contribute value to the world in any way.
There’s no denying that the latter bullet point has become prevalent in crypto now. Many pre-product CEOs becoming overnight billionaires from launching a token and making some promises about an NFT-driven video game, or building a “web3” platform that attracts only double-digit active users.
In sum
Web3 doesn’t really exist yet. But evaluating its merit on superabundant bull market ponzis is probably doing it a disservice, the same way ignoring those market dynamics would be dishonest.
The social problems with the world, and with web2, I think are valid and worth solving and there’s a lot exciting stuff to consider in the promises of web3.
I think open, transparent and permissionless systems replacing trusted central authorities is good for the world and can rebalance and decentralize power.
I’m hopeful that the financial exuberance in crypto markets can attract brilliant minds away from selling people ads to instead build a more equitable and cooperative future.
But I ain’t gonna be surprised if crypto founders are too rich to care anymore and the new web gets built by late-stage capitalism greedcorps that make you buy a fractionalised micropayment NFT on Cardano to operate your electric toothbrush.
Post-credits
I am aware that I have been baited into a philosophical and fairly inactionable debate between tech billionaires who all got rich off the Facebook-era of the web. And that, truthfully, the outcome of their debate doesn’t matter much because they are no longer the risk-taker builders of the future. Perhaps they are the financiers, but then their power law curve models already assume they’ll be wrong more than they’ll be right.
I think Cobie is one of really serious minded and able persons (or might I even say narratives, cause he is sort of a narrative himself) of the crypto world. The ability to really understand the metaphors and the so called under-text is remarkable in today's world. I am truly grateful for his work and I am very happy that he shares his ideas with us. It seems that some people have this gene of a pastor:) And its very cool. My life would be very much different without Cobie's and Ledgers podcast UpOnly. Thanks guys!
Dear Cobie,
It's great to read your posts. I’m new to cryptocurrency trade. Its about 2 months. When I research about crypto there are many information pollution. Your articles are very helpful in weeding out this information pollution. Many thanks.. I want to share my idea about your article.
Gattopardo (The Leopard) is a nice movie, based on the novel by Giuseppe Tomasi di Lampedusa, about social turmoil and class conflict in Sicily in the 1860s.
The film follows the Prince of Salina who is intent on preserving the existing aristocratic class order in the face of a rising bourgeoisie. As the crisis grows, Tancredi, the prince’s Wily nephew, speculates that things must change if they are to remain the same. Originaly the sentences is; “If we want things to stay as they are, things will have to change.”
And they do. After the revolution, the old aristocracy remains on top, allied via marriage with the new urban elite. The response has been gattopardo economics, which is change that keeps things the same. If we look at this perspective most of the revolutions contains “Gattopardo Economics” bias. Also the Bitcoin revolution have a big bias to remain power to the mainstream financial instute and cooparations.
As J. Baudrillard say, we live in the age of “simulation”. We are dealing with simulations of people, plants and animals, not themselves. In order to accelerate the transformation of time into money, natural maturation in human and nature depending on the production rate of capital it is kept alive in greenhouse time by being taken out of its time. On the other hand, cooperation turns into simulacrums in the capitalist universe: a state of pretending, where gift-giving turns into bribery and the act of giving out for self-interest increases.
Is there a possibility to build a more livable world of the future? Maybe there is. However, it seems to me that this possibility has to be shaped by institutional transformations to encourage mutual aid and gift giving.