Why I'm Skeptical Of Web3: An Outsider's Perspective
Is it a good idea to invest in Web3 today?
Now that a lot of the noisemakers of Web3 have transitioned towards generative AI, I feel safer as I say that I do not like the Web3 space.
This is definitely the most controversial start I have had to an issue of another random community newsletter, but it is just as true as any other. Yes, indeed, I am not fond of Web3; however, my lack of fondness is for good reason. When Web3 was touted as the future of the internet on public forums, there was a lot to be appreciated. Technically speaking, the decentralized system that Web3 champions at its core is a wonderful concept. This is the first system that attempts to enable interconnectivity at a massive scale while enabling entire ownership of an individual’s data. Ideally, this should have put us further on the path of a technological utopia. But it did not.
Therefore, in this issue, I will discuss why I do not believe in the Web3 of today.
My Issues With Web3 😤
Before we jump into my issues, one note I will place is that my issues are not with the underlying technology. It’s how that technology is applied that causes concerns, which I will explain in this section:
The biggest concern I have is that most Web3 builders are trying to solve problems in our society by disregarding social, legal, or financial constructs. While this works well in exceptional scenarios where we have observed failure of these constructs, for example, war-stricken regions and failed states. HesabPay was one such solution that has helped facilitate transactions for general citizens as well as to help get support from NGOs in the Afghan humanitarian crisis.
In functioning and thriving societies, however, decentralized social or financial tools do not add any advantage yet since they seem to replace current structures rather than complement them. And this conflict only causes issues for the general consumer. For example, in just 2022, over $2 Billion have been stolen from bridge protocols. A major factor accelerating these problems was the lack of compliance and standards. Unless Web3 systems find a way to collaborate and comply with existing systems, they will always remain an outlier.
Predatory Behaviour at Large-Scale
A core value that the Web3 space champions is decentralization, i.e. distribution of authority across members and the requirement of consensus for system-wide decisions. However, we have seen quite a few cases where this system has been manipulated and resulted in gains for a specific set of entities. One of the most recent cases of this was observed when Twitter changed its logo to the Dogecoin logo. While this was treated as a joke, it caused a ~30% spike in the Dogecoin price.
The reason cryptocurrencies face issues of manipulation is that, unlike fiat currencies, which are backed by securities, cryptocurrencies are solely dependent on demand and supply. And when it comes to humans, demand is not always dependent on reasonable factors like necessity. One major recent example of this was the CryptoZoo fiasco, where YouTube star Logan Paul was accused of executing a massive rug pull, having raised a massive amount of money from interested participants of this NFT-based game without actually delivering on the promise, also leading to a huge plummet in the value of their tokens.
Unfortunately, if decentralized systems of such kinds can be manipulated so extensively, we have to ask ourselves whether these are any different or better from centralized systems at all.
Transactional Nature of Interactions
One of the biggest differences between Web2 and Web3-based solutions is that in Web3, almost every interaction with any application is a transaction. This is mainly because of a difference in how the application infrastructure functions in Web2 and Web3 solutions. In Web2, you tend to run your backend logic on a centralized computing system, so you tend to see some form of server costs for the entire application. This is not the case in Web3, however.
In Web3, since there is no centralized compute, you run backend logic via smart contracts on the blockchain network. Each smart contract execution must be run and validated on every full node on the network (this process is being streamlined on newer chains than Ethereum 1.0 but is still highly inefficient). Therefore, the networks have a gas fee to compensate every member of the blockchain network for delivering computing power.
The problem is that gas fees are volatile and can get high (due to various factors such as network congestion or complexity of transactions). This causes a high amount of inconvenience for the end user since it makes costs difficult to predict and deteriorates the user experience too. While this trustless system assists wonderfully in mitigating middle agents, it raises the question of whether such a trustless system (which is the primary reason for needing to validate the transactions across the network) is even necessary outside very specific challenges.
Web3 Must Be A Feature, Not The Brand 👀
Despite many legitimate concerns, the reason the Web3 hype grew was that the loudest voices were not those of the people building for the space. They were the voices of people looking to capitalize on the space. And in this process, these individuals turned decentralization, a feature of a solution, into the brand of the solution. And this step was taken with the sole purpose of making more money.
Now, I have nothing against wanting to make more money. But money at the cost of ethics is something I shall not endorse. The truth is that their strive to capitalize on this “newly found gold” became the biggest barrier in allowing the space to mature because it drove a purism that blocked a lot of builders and learners from envisioning futures where centralized and decentralized technologies would complement each other. They were pitched against each other for the very purpose of polarizing the community because the one polarization does is that it drives attention to both fronts.
One statement I very confidently make is that until decentralization stops being used as a marketing tool, this space will not progress at all.
Is Web3 Worth Betting On? 🤔
The Web3 I criticize today is not the Web3 that we may see tomorrow. As we see the noisemakers of this space turn to other technologies (or gold rushes), the builders will get a better platform to voice their perspectives and allow valuable ideas to nurture and grow and impact the domain. This will take time, to be honest. Maybe it will take 5 years, 10 years, or much more. But it will mature and prosper because, as I said at the beginning, this is the first system that attempts to enable interconnectivity at a massive scale while enabling entire ownership of an individual’s data. I do hope that in the future, we will see this technology grow and create an impact on both social and business fronts.