The web3 takeover
It seems like over night, web3 took over. The crypto bros were right all along. You start your morning logging into your decentralized social media application. You’re getting ready for the day by listening to music on your web3 music app that pays royalties directly to creators. Your decentralized podcast app has your favorite podcast ready to go on your way to and back from work. You log in to your decentralized finance app with your private keys to check your funds. They’re safe. You continue your show where you left off on your web3 video streaming app. You’re ready to call it a day and do it all over again tomorrow!
Everything seems just the way it was before web3 took over. What’s different?
What’s different?
On the user facing side, we don’t notice a difference. The traditional web that we’re used to and the web3 model share the same tools to create the frontend. The difference is in the backend. Instead of accessing information from a centralized server, web3 applications access user requested information from a decentralized blockchain.
Our relationship with passwords are also different. The web3 system relies heavily on cryptography. The traditional passwords we’re used to forgetting are only one step of the process in web3. What we’re really trying to keep safe are our private keys. The private keys are our claim to the blockchain. The blockchain stores the logic of the applications we interact with. So we still use a password to access a wallet, but it is our wallet that is our portal into the blockchain. If we forget our password, that’s okay. But we CANNOT lose our private keys. If we lose our private keys, we’ve lost our wallet and our access to the blockchain.
In theory, we’ve also removed the middle man from the equation. Applications don’t require permission, they’re decentralized, and they’re trustless. The users are in control of the web3 applications they use.
DAOs and Governance
How exactly are users in control?
The main goal of a web3 application is to transform into a Decentralized Autonomous Organization (DAO) in order to facilitate governance. Governance is the process in which DAOs make decisions.
Step one of the entire process involves building an application on a blockchain (a centralized endeavor). Next, the developers need to attract users to their application. Finally, with a strong enough userbase, the application can migrate to a DAO where the developers play a secondary role serving the users that are now in charge of the decision making process.
Developers need to create an application worth using, and they need to incentivize users to participate.
How do developers attract users to their applications? A common and effective strategy in web3 is to issue governance tokens. Governance tokens generate voting power. Governance tokens also allow users to create proposals.
Governance tokens can be issued in many ways. Sometimes, users are “airdropped” governance tokens for using the application. Another method of acquiring governance tokens is “farming“. In exchange for using an application, users are provided with a controlled emission of tokens. Whatever the method, the point is that users are rewarded with governance tokens for their participation.
So in theory, an application begins its journey through centralized means, but the end goal is to reach a point of decentralization.
Theory vs Practice
In practice, developers have the final say. Perhaps it’s too early to judge, and over time all our favorite web3 applications will move towards complete decentralization. But if we are passing judgement today, web3 applications are centralized.
Developers can manipulate user access through the frontend creating a permissioned environment. While the trustless nature of web3 stems from open source code that anyone can read, trustlessness becomes irrelevant when developers control the gates of the frontend.
In theory, web3 wants to achieve a state where the code is law. Users create governance proposals and vote to adjust the code as needed. In practice, developers create and adjust the laws. Governance is a marketing tool used to onboard users.
Inconveniences in practice
Even with well intentioned developers, web3 still faces hurdles.
Content moderation is the elephant in the room. Especially when dealing with social apps, “code is law” is the gateway down a slippery slope.
But moderation also applies to financial applications. As an example, if we create a web3 GoFundMe, what is to stop the inevitable onslaught of fraud? If “code is law” and there is no mechanism to weed out fraud, web3 GoFundMe would be a spawning pool for scams.
Going back to social apps, limiting speech is not the issue. We can create environments where free speech is absolute. Whether you want to participate is up to you. But we cannot allow environments where we facilitate illegal content. Illegal isn’t “You’re not allowed to say that and therefore it is illegal”. We have clear definitions of illegal content.
If we allow code to rule, exploitation is an inevitable outcome. A system governed by code is rigid. We need methods to help us navigate this black and white, all or nothing state. And these methods will be rooted in some from of centralization. Our society relies on moderation.
But there is a bigger problem stifling progress.
Greed
The root of the problem lies in motivation.
Most users aren’t attracted to the cryptocurrency space to create governance proposals and vote. For the majority of users, the attraction is value accrual. As long as value is being transferred to users, the buzzwords (permissionless, decentralization, trustless) are afterthoughts. They become issues when the mirage of value becomes apparent. When users see the value of governance tokens or their investments plummet by 90%, the buzzwords shift to the forefront.
Most developers aren’t interested in creating decentralized applications. Blockchain is a new concept still finding its footing. Developers simply view it as an alternative platform to market their applications.
Blockchain was initially created to function as a public ledger to facilitate peer to peer transactions. It has morphed into a platform that wants to facilitate everything. Fueled by greed, developers will market any type of application and attach the word “blockchain”. Fueled by greed, users flock to these applications, but they don’t care about the benefits or implications of “blockchain”.
While greed is a driving force, it is also a major obstacle inhibiting the progress of web3.
The web3 future is unrealistic
The web3 system is predicated on the inconvenient reality that, when it is time, users must trust developers to give up control.
As we navigate through the maturation phase of blockchain and web3, we are learning that not everything needs to be on a blockchain. However, many industries would see immediate benefits. The financial industry is destined to completely migrate to blockchain. The healthcare industry would see a massive increase in efficiency being able to share information between facilities in a more secure and convenient way. Proof of ownership would gain an extra, necessary level of authentication with blockchain.
Expecting web3 to completely replace the current iteration of the web is unrealistic and misguided.
Most importantly, if greed continues to be the motivating factor behind web3, there is no path forward.