Web3: the future, a scam or both?

What is Web3, and why is the tech world obsessed with it?

NFTs displayed on billboards in Times Square in New York City in November 2021 during NFT.NYC, a conference for all things related to NFTs. | BLOCKWORKS

If you're up to date with Silicon Valley lingo, you may have heard of this "thing" called Web3. Some say it's a fundamental remaking of the internet to take away tech giants' monopolies. Others claim it's a pyramid scheme concocted by "filthy NFTers" to scam people.

Don't worry, I'm puzzled too.

Web3 is difficult to define. Just like 'happiness' has subjective interpretations, the conception of Web3 is also hugely ambiguous. A lot of said ambiguity comes from a mix of buzz, optimism, confusion, value judgements, and pure unadulterated speculation surrounding Web3—which means it’s being thrown around as lots of different things.

It’s easy to dismiss all of this as a fad, especially if you’re aware of the numerous tech bubbles of the recent past—the Dotcom Bubble is one that comes to mind. But lots of key innovations hatched from tech bubbles, even if lots of money were burned on a lot of dumb stuff while the bubble was inflating. So if or when bubbles deflate—which may be exactly what’s happening now to the internet/tech as we know it—you can still find value in the aftermath.

That's why I’ve been spending time—with a mindset of cautious skepticism—attempting to figure out Web3 for myself. Spoiler: I didn’t fully figure it out.

But I found sufficient potential opportunity with this stuff to persuade me that, amidst this nebula of nonsense and confusion, there might be something of value there. So I’ll keep paying attention. You might want to, as well.

So what actually IS Web3?

Basically, Web3 is a rebranding of crypto and blockchain. For the uninitiated, it's the technology that links a worldwide network of computers that communicate with each other to validate and record transactions without human intervention or centralized oversight.

You're probably heard about it somewhere—even if its meaning just flew right by. This tech has been around for over a decade, and for a lot of that time it was mainly associated with Bitcoin. You can tell how much this area has developed just by looking at this cryptocurrency. A few years ago, you couldn’t really do much with Bitcoin—but now, even after crashing significantly from its peak, it’s worth ~$40,000 and is widely accepted as a legitimate means of payment.

Now you can actually do some things with the blockchain other than Bitcoin. Not many things, yet. But some. Most of it is still about buying and selling stuff—except now you can also buy and sell digital stuff: the oh-so controversial NFTs that come as art collectibles, plots of digital land or other items for certain video games. This is why you’ve seen headlines about someone paying $69 million for a digital collage, an ape drawing being mistakenly sold for $3,000 instead of $300,000 or someone losing $150,000 on a "left-facing rock".

Now, it’s entirely possible that this is it. This is the final form of Web3: an interesting way for people to collect and/or speculate on digital artifacts. This could be meaningful for certain digital artists and collectors—and here you may casually interpret the word “art” as something people make and others appreciate it in some way or another. But if it stops here, this isn't world-changing.

Web3’s most keen patrons think this isn't it—they believe it will bring about a revolution about the entire internet, and have great repercussions on greater society. Hence the name.

Web1, as the argument goes, roughly refers to the period between 1991 and 2004, where most websites were static web pages. At the time, the internet was about getting normal people onto the web—not as producers, but purely consumers of content (remember that the original creators of the internet used it to share academic papers, hence this "read-only" approach). No logins, passwords, comments, nothing. This era saw the rise of browsers, and then search engines like AOL and Yahoo!

Web2, the one we're currently in, revolves around the idea of "the web as platform". It centers around user-created content and maximizing the time people spend on the internet. By giving you this platform in exchange for your data, they convert all user activity into real businesses, and then consolidate these businesses into massive operations that seem too big and influential to fail—think Facebook/Meta and Google.

With Web3, again, as the argument goes, you take control back from the Facebooks and Googles of the world by revoking their centralized, concentrated power.

Ok, so how's that supposed to happen? Well, it’s complicated... and mostly theoretical:

The blockchain lets people create their own money (Bitcoin, Ethereum, etc), without permission or supervision from any country or bank. It could also, Web3 proponents say, let them build anything on the internet they want, without having to rely on platforms like Google, or depend on tools like Amazon’s AWS cloud computing services. They would function solely on the massive network of common computers that would act as the infrastructure—if you're familiar with torrenting, it would be something similar. Crucially, these new services could be owned, in proportional parts, by the people who built and use them—not by conglomerates of massive tech giants.

This is what gets people excited for Web3. Firstly, there’s the possibility of competition and profit: Many of the folks intrigued by Web3 also feel hindered by the current version of the internet, where their ability to translate their meaningful new ideas into proper action—especially those targeted at consumers—is capped by internet giants who can easily buy, build their own, or outright crush their startups.

Some of interest in Web3 also stems from political fears—real or imagined. While many are grateful that ex-POTUS Donald Trump lost his social media, you should also be worried that if a handful of companies could deplatform a powerful figure, they could swiftly do so to just about anyone. In a Web3 world, Mr. Trump could only get kicked off a social network if the social network’s users—who would be the social network’s owners—wanted that to happen. And even if they did, there would be other platforms on Web3 for Trump—or any other person you loathe—to set up shop instead.

To many, though, the primary appeal of Web3 stems from its unprecedented nature—as far as we know, it could be anything. And this resonates with those seeking for an opportunity: from young techies wanting to escape the stronghold of a handful of tech giants, to wisened folks who see in Web3 the same potential of the early internet.

Endless Possibilities... Right?

Now all of this new stuff sounds great. Though I haven't witnessed it, it seems to bring back the vibe of the 90s when nobody knew what the capabilities of the internet were because no one had tried them yet.

The Netscape Navigator homepage in 1995. | AP

However, I urge myself, and you, to think that even in those early days, you could more easily imagine ways the internet could be helpful to you, an average person. The promise of nearly-instant communication could be more easily seen as an email sent to a faraway relative, seeing box scores live as you watch a sports match, reading breaking news live instead of on the paper the following day, watching other "stuff"... Fill in your own blanks.

With Web3, though, it's undeniable that your average user would struggle to see the practical applications derived from this technology. Don't get me wrong: the idea of sending a message instantaneously is super impressive. But it's much more difficult for a common person to visualize how the blockchain will revolutionize their day-to-day life.

But Web3 advocates would argue that we should broaden our minds. Start with NFTs: “non-fungible tokens”. These are the Web3 items you’re most likely to have heard about. They're essentially the blockchain version of a title for a car or a deed to a house—they prove that you own, at least a fraction of, the "digital thing" in question. (Whatever your perception of value is, screenshotting an NFT does not equate to owning it. Suppose someone takes a printscreen of you on an Instagram post. Do they "own" you now? No. Same thing. Now whether you perceive value in a given NFT is another can of worms that I'll let you decide for yourself.)

Keep in mind that NFTs barely existed two years ago. But in the last year alone, people spent a reported $25 billion on them. If this doesn't sound like a bubble, I don't know what does.

Keep in mind that NFTs barely existed two years ago. But in the last year alone, people spent a reported $25 billion on them. If this doesn't sound like a bubble, I don't know what does.

BUT! Looking past the quirkie drawings selling for millions, the fact that NFTs are automated contracts that remove the human from the equation means that (i) the technology can be applied to any digital good and (ii) people can write interesting rules into the contract that, say, pays the original creator royalties every time any time the asset is sold/re-sold. Look, I don't fully believe in NFTs as an art form per se, but I cannot deny that there is the potential to create new ways to fund and profit from all kinds of new projects—some of which might even make more sense than traditional models.

Meanwhile, other Web3 believers claim the most revolutionary potential of the tech is beyond just buying and selling stuff: They’re most interested in how it can help people organize themselves online to create organizations that could rival, or even replace, giants like Facebook/Meta or Google. That’s through something called DAOs—decentralized autonomous organizations. These are essentially internet collectives, where automated blockchain tech is supposed to split up ownership and make it easy to distribute decision-making power among members by distributing voting rights. Supposedly, you can get into a DAO by buying into it, or you can receive equity based on your contribution to the group.

Unfortunately, like NTFs, if you've heard about DAOs before, it's most likely because of the absurdities that make headlines. I'll skip these here, but if you're really interested, here are a few: this, this and that.

But anomalies aside, more rational individuals who talk up DAOs see them as an excellent way to quickly and fairly bring groups of people to work together—regardless if it's a one-off project or full-fledged company. And, in theory, each participant's contributions can be measured—making DAOs an equitable experience. Keep in mind though: all of this is mostly theoretical for the time being. But if it does work in practice, it does have the potential to, say, help startups that want to quickly get off the ground to grasp that opportunity that would otherwise have flown by.

Conclusion?

All of this sounds... interesting? But if there’s anything that Web2 has taught us, it's that even the most exciting innovations come with unintended complications and unprecedented consequences.

For starters, detractors argue that blockchain is an incredibly bad way to utilize computing power, and that crypto currency “mining”—racks and racks of mining-specific computers that generate crypto currency—is an irresponsible and arbitrary waste of energy in a world facing a dire climate crisis (though the extent of the environmental impact is up to debate).

Mining racks at a Bitcoin farm in Russia | ANDREY RUDAKOV—BLOOMBERG/GETTY IMAGES

Another major challenge is that Web3, at least in its current form, is not even remotely user-friendly. This, in addition to Web3's very concept of rejecting centralized control, there’s very little in the way of consumer protection. None, actually.

And while Web3 fans argue that government or private agencies aren't necessary for protecting you and your assets because every transaction is recorded in public and verified by the blockchain, in reality, the infant platform is still plagued with ineptitude, bugs, and outright scams.

It is also important to note that new tech doesn't mean new us: Even the most optimistic version of Web3 will likely port over existing problems of Web2 and of human nature itself. Take basic supply and demand as an example. Web3 will likely still mirror hierarchies where people in disadvantaged socioeconomic positions are willing to do more work for less pay. Axie infinity, a "play to earn" game seemed like a new way for people to make a living, leading to a massive player base in the Philippines. But, as new players flooded the game, they depressed the value of the game's currency—leading those who mistook it as a consistent form of revenue to earn less than the country's average minimum wage.

Lastly, while I understand, and agree, with Web3's key pitch on users regaining ownership of their own data, I recognize that there are occasions where people don't mind forking over information to have access to the convenience of an online platform. Do I enjoy giving YouTube/Google my data regarding my interests to sell to advertisers? No. Do I want to have a sensible recommended page that shows me videos that I actually want to watch? Yes. It's a trade off, and one that I cannot tell how it would work with the Web3 system. The same argument applies for deplatforming—it really depends on your trust (or lack thereof) in the current authorities.

So, my takeaway is... I don't know.

Web3 triggers a lot of red flags, but perhaps that's just me not being able to make sense of things. But I'm convinced that a lot of people who are betting into NFTs and other dubious quick-cash pitches are going to get burned because they're playing with something they don't truly understand. On the other hand, even if only some of the Web3 claims materialize, the tech space, and the rest of the world for that matter, will be—at the very least—in for a reshuffling.

Just because we can't tell where the future of this stuff is going to look like doesn't mean we should keep our eyes peeled for it.