Few things in recent memory have been as polarizing as Web3.
On the one hand, it is full of Ponzi schemes and rug pulls. You can lose your money from hacks or bugs. You have no “reset my password” recourse if you lose private keys. You pay mind-boggling gas fees to use Web3 applications whose existential purpose was to lower the predatory take rates and fees of middlemen. It can be clunky to use even for a tech-savvy user.
On the other hand, it may well contain the seeds of massive disruptions to status quo—even if it lives up to only a fraction of its promises: Preserve and grow your wealth with digital gold; act as your own bank and stake, borrow, lend, and transfer money at better rates and faster speeds; login to websites and apps without the username/password nightmares of today and own the personal data trail you generate; own and trade your favorite sports team’s collectibles with no hassles of physical wear and logistical handling; Not to forget banking the unbanked, getting paid for contributing data and content, raising millions of dollars of capital in minutes, upending corporations and state institutions with community-owned organizations, etc.
Most people’s eyes glaze over when they hear all this— Sure, it kinda sounds awesome. But what is real, what is fantasy, what is scam, and who is it benefiting anyway? How can I tell what’s the real utility from speculative trading?
While there have been more spirited debates recently (see here, here, and here), those on the margins of crypto tend to not ask too many questions lest they be branded as ngmi. Except for the self-appointed crypto cognoscenti, the path from the Ponzis to the promised land is hazy notwithstanding genuine progress in several areas like Decentralized Finance and NFTs. You may want to desperately believe in the hype given how many smart people are working on it, but you also wonder if they are too idealistic or naive, or just exploiting a frothy market.
Some tribes within Web3 worship their own crypto coins while pooh-poohing other sects; some others paint crypto skeptics as luddites caught in the past; and there are many who dismiss the entire Web3 movement as poppycock. Philosophically speaking, celebrating something without acknowledging uncertainties is just the same as dismissing without diligence or doubt. Extreme positions do not survive the rigor of scrutiny or the fullness of time. The messiness of reality, the vagaries of the human condition, and the probabilistic nature of our futures demand a nuanced approach.
Roger Martin has written extensively about holding two contradicting thoughts at the same time to evolve an integrative model of understanding.
Analogously, we were born with opposable minds, which allow us to hold two conflicting ideas in constructive, almost dialectic tension. We can use that tension to think our way toward new, superior ideas. Were we able to hold only one thought or idea in our heads at a time, we wouldn’t have access to the insights that the opposable mind can produce.
One good way to understand complex or dense technologies is to approach it from the other side and ask what problems it is seeking to solve and if these can be described simply enough to outline what “better outcomes” would look like, and then check if/how the tech can deliver these outcomes.
To answer why Web3, we need to turn our attention first to our discontents with the status quo. These have their origins in areas where a small number of institutions have accumulated too much power and wield them with little oversight. It also coincides with a general decline in trust in institutions creating an environment ripe with resentment for large incumbents.
These discontents can be broadly classified into four buckets:
Discontents with preserving and growing the value of one’s savings/investments/wealth.
Discontents with financial intermediaries who help users save, borrow, lend, invest, transfer, and manage their monies
Discontents with information intermediaries who broker content, conversations, and commerce
Innate and unfulfilled human desires for belonging, ownership, peacocking, and speculation (BOPS) that are seeking expression [1]
Web3 (or however it was called then) started in 2009 with a technology for peer-to-peer money transfer without a centralized party, but this powerful concoction of discontents and desires has been pulling it forward and now it claims transformative remedies to what ails current systems.
This series of essays over the next few weeks is my attempt to understand both the left and right side of this equation from first principles. I have been active in the Web3 space for the last few years as a founder and investor, and thought it might be fun to question my own and others’ assumptions in the space and think through a number of thorny issues in public.
I hope to use non-technical and simple language for the most part and I am going to try hard to keep it straight without hiding behind jargon. The intent is to present the analysis in two main segments, each split into a few parts.
The Origins of Our Discontents deep-dives into the characteristics of the problems that Web3 wants to solve and develops a dashboard of discontents: What does not work well today and what might “better outcomes” mean for each area of discontent? I will also trace the history of the corporation, where it has caused friction and resentment, and what has led to the present moment. As Rumi once said, “Every craftsman searches for what’s not there to practice his craft.” Being precise about the problem or need is critical to know if/how a solution can address it.
Part 1 addresses the discontents of users and providers in Finance
Part 2 covers the discontents with current information networks
Part 3 deals with the latent human needs for belonging, ownership, peacocking, and speculation.
From Corporations to Protocols is a series of pieces on if/how Web3 addresses this smorgasbord of discontents. Can trust-less protocols —after unpacking what that even means—deliver better outcomes vs. powerful corporations and state institutions, or are we chasing a mirage? Can other alternatives —reform, regulation, or non-crypto technologies—provide superior solutions?
Part 1: What is a Protocol Anyway?: How to understand protocols from first principles?
Part 2: Decentralized Finance vs.Centralized Finance: Can new Web3 models address the discontents in financial use cases? What is the current evidence, does it stand up to scrutiny, and what does it need to go mainstream?
Part 3: Web3 Protocols vs Web2 Networks: Are Web3 versions of Uber, Airbnb, or Doordash viable? Can protocols address the current discontents with these companies? Can they find a sweet spot between laissez-faire capitalism and redistributive socialism? Can it provide a new paradigm for extending the succulent fruits of capital —so far limited to shareholders only —to the labor class? How does the economics of protocol-based organizations compare to centralized alternatives for varied stakeholders?
Part 4: Culture, Memes, and NFTs: The role of culture in Web3, why is this relevant, the different types of NFTs organized by organic and artificial scarcity, and where they might evolve in the future.
Part 5: Best Use Cases for Protocols: Where can protocols be superior alternatives to corporations, co-ops and state institutions? Where will they be not a good fit?
Part 6: The Bullish and Bearish Cases for Web3: What do the rosiest and bleakest scenarios look like? Are there any areas where we can predict likely outcomes with high confidence?
[1] Peacocking is not gender neutral in its definition, but in this case it implies strutting or swanking by anyone to display wealth/membership/art/NFTs and the like.