Discover more from Vault
Opportunities and Obstacles in web3
Any new technological movement will have its early adopters and its early skeptics. For web3, the early adopters are diligently working on new companies, new apps, new DAOs, and more—while a few leaders in the space are doing interviews and taking on the criticisms of the early skeptics.
One conversation that has stood out recently was between Chris Dixon, crypto lead at Andreesen Horowitz (a16z), and Nilay Patel, Editor-in-Chief of The Verge. They spoke at length about the opportunities and challenges facing web3 and covered many of the most common criticisms of the space.
I’ll lay out the key points below.
What is web3? By Dixon’s definition, web3 is fundamentally about the protocols that enable the modern internet.
Dixon: “In my mind, if Web3 works right — if we can do it the right way — it is the best of both worlds of Web1 and Web2. The advanced functionality that we have come to like from Web2 service is the slick user interfaces, the ability to read and write as we say, and to both consume and publish. We also have the predictability, reliability, and neutrality of Web1 protocols. Very importantly, we have the ability for creative people, businesses, and startups to reach audiences directly, and to truly have a relationship with those audiences that is not mediated by algorithms and advertising, which is where I think we are today.”
web3 is as much about a philosophy of the next internet era as it is about any specific group of products or companies. Who should have control? Corporations or protocols?
When innovations create value—where should that value accrue? It could go back to a corporate entity, as it does today, or accrue back to the protocol, where it benefits everyone.
At its core, web3 is about many people with a shared vision for the future of the internet working to make that vision a reality.
What are NFTs? Non-Fungible Tokens (NFTs) are scarce digital assets secured by a blockchain. Most NFTs are minted (created) on the Ethereum network, but other blockchains support NFTs—Solana, Tezos, etc.
Most NFTs are essentially code that proves the scarcity of the NFT contract itself and contains a pointer (a link) to the underlying asset. When you purchase an NFT, you buy the contract itself, which acts as a proxy for ownership of the underlying piece of art—or whatever it is the NFT points to. Many NFTs also convey copyright for the underlying art. The copyright aspect is still being figured out, and people are working to solve this across many use cases.
Why do we need NFTs? NFTs are fundamentally a new technological primitive. They enable anyone to create a contract representing ownership of a digital object and offer that contract for sale to anyone else.
Many believe that NFTs offer a way back to a more open internet. The current internet, web2, gives platforms monopolistic pricing power and the ability to extract fees because they own your data.
The current platforms (Facebook, Twitter, Amazon, Google) aggregate data and offer a seamless user experience. They bundle distribution and monetization in one platform. web3 offers an opportunity to unbundle distribution and monetization and allow creators and users to keep more of their revenue. Many new ways of monetizing and distributing will be created. NFTs are one possible solution to monetization on an open internet.
Dixon: “…It is digital ownership; you can now own a digital object.”
Is the energy used by web3 technologies ‘worth it?’ The common criticism of blockchain technologies is that they use lots of energy to secure the network.
Most people fail to understand that this only applies to Proof of Work consensus mechanism pioneered by Bitcoin. This doesn’t mean that Bitcoin is ‘bad’ because it uses large amounts of energy. We need to separate the debate around the energy used by Proof of Work from chains that use Proof of Stake—another consensus mechanism that uses much less energy.
Ethereum currently uses Proof of Work but plans to switch to Proof of Stake. The Proof of Stake network that Ethereum will switch to is already built. Making sure that network security and reliability are stable is being worked on. The transition from one network to the other is called ‘The Merge.’
Once Ethereum transitions to Proof of Stake, its energy use requirements will drop up to 99% from where they are today. Any argument against blockchain technology needs to consider that this is where most of the industry is headed. Many within the space are concerned about energy and the climate, and energy use will be iterated and solved over time.
web3 aims to be decentralized. If platforms that provide a UX on top of the blockchain attract most users, won’t web3 become centralized? This is a valid criticism of the direction of web3. But there is a key difference between the centralized platform of web2 and the new platforms being created on web3, which is the ease of switching.
The key lies in how easy it is to switch to another service if you don’t like one specific platform.
For web3 services, if you don’t like Opensea, you can easily log out and connect your wallet to another exchange. Opensea doesn’t have any top-down control over your data.
Unlike Facebook, which controls all of your data, including the graph of people you follow and follow you back. If you want to leave, you cannot take your data. Facebook owns it, and they will keep control of it whether you stay or leave.
Centralized platforms will emerge as part of the transition to web3, but the important thing is that data control remains with the user. Centralized platforms offer a compelling service to users, namely a polished UX, and they may take a transaction fee (in the case of marketplaces) for providing access to the platform. As long as users can maintain control of their data and easily move to another platform if they want to—then web3 will be a major improvement over the current platform dynamics of web2.
Many opportunities and obstacles will emerge during the transition between web2 and web3. Skeptics will raise concerns, and early adopters will have to manage those concerns and build for the future. It’s early, and there is much to build.
Thanks for reading Vault! Subscribe for free to receive new posts.