(Note: This was originally written in summer and fall 2022, and for various reasons I decided not to publish it then, despite the obviously enormous amount of work I put into it. One reason was that I wasn't completely satisfied with it, so I still consider it to be a work in progress. Given the enormous volumes of writing out there dedicated to the broad topic of web3, it would also be rather bold of me to think that I have much new to offer. This is, instead, a way to organize my thoughts, which I am willing to share with you. If you are kind, I will be happy to carry on a dialog that might improve my understanding, as best my time permits.)
I believe in the re-decentralization of the web. I want creators to be paid and I believe in the idea of micro-payments, and it would be nice if that meant something other than advertising. I love Larry Lessig's idea of managing the incentives that web2 companies have to create addictive, outrage-driven products. Although the Russian aggression in Ukraine brings the whole liberal project into question, I still think increased flow of goods, people, knowledge and principles across borders leads us toward a better world. And Joi Ito's description of web3 as being about community brings it into focus, gives it a direction.
What I don't believe in is most of the technologies being touted as transformative and necessary to web3.
What I don't believe in is blockchain as a currency, a store of value, or a speculative investment. I do believe it potentially has value as a public record of certain communications. It is also a brilliant technical innovation, still searching for the right way to be applied.
I very definitely don't believe in NFTs. I can't see what value they add at all.
And the metaverse...ah, the metaverse.
Backing up for just a second, blockchain, NFTs, and virtual reality/metaverse are the rather disparate technologies that are getting welded together and touted as the cure for everything that ails today's World Wide Web (and there is a lot that ails the web). Collectively called web3, the purported win is that they enable DeFi (decentralized finance, in contrast to CeFi or the "fiat economy", which is never used as a compliment), DAOs (distributed autonomous organizations), and more.
Supposedly.
And supposedly, in at least some tellings, not only do these technologies solve what ails the web, they solve some fraction of all the world's problems.
Which means, I suppose, we need to begin with a quick look at what some of those problems are and how we got here before we look more closely at the technologies on offer.
The Vision
Among quite a number of things I read, the longest and most coherent was Joi Ito's book in Japanese, 「テクノロジーが予測する未来」(tekunorojii ga yosoku suru mirai, or The Future that Technology Predicts, more or less), which I read most of. It partly inspired this posting, so I will be referring to it quite a bit, but I don't want this to be just an analysis of Joi's arguments. The book is very focused on the notion of community and the ability to quickly create and scale up new communities. Joi is well known for being quick to "try on" new ideas, always looking for something to remake the world, so his thoughts are interesting even if not always as grounded in technological or human feasibility as we might wish.
Joi describes web1.0 as read, web 2.0 as write, and web3 as join (or maybe "participate"). This takes us from 1.0's monolithic web servers whose installation and maintenance and publication required significant technical expertise and capital, through blogs (and the early days of online shopping), to 2.0's Facebook-dominated world of SNSes where anyone can write or share photos far more easily and a handful of hypergiant e-commerce corporations control what we search for, buy, read and use. Today, the buzzword web3 is supposed to help us build large-scale, global, autonomous communities, with as little regard for existing prejudices, practices, rules and laws as we can get away with.
Joi describes project-based organizations that come and go like movie productions. Given the chaos, stress, grift and uneven distribution of rewards in moviemaking, I'm not so sure that's an attractive description. It also sounds like a macro-scale gig economy, where many people have to hustle for every dollar, and I am certain that is not the right model for everyone (though it may be for some).
The word efficiency comes up repeatedly. To Joi, this seems to be the heart of what these new technologies bring, and it is a seductive Siren. After all, the worldwide web itself is "only" a more efficient way of publishing and sharing information. If a new efficiency really takes hold, it can transform the world.
Ownership of not only the things you create but the things you buy is frustratingly difficult to even understand, let alone manage, today. Amazon can delete things from your Kindle, and prevents you from selling them on to others. HP can remotely disable the printer you bought and paid for, if your credit card that must be filed with them expires. John Deere has...a complicated relationship with the right to repair something you own. (Okay, now we're getting a little far from web3.) John Deere also lays claim to the data that their Internet-connected farm equipment collects. One of the principles of web3 is to return ownership of data to those who generate it.
The Internet is sometimes touted for its "permissionless innovation" (which, of course, is how we got the web itself -- no one had to give Tim permission to deploy the first web server). I would called DAOs "deferred legality". Spin up a quick bulletin board or server or Github project for the community to meet, invite others in, establish a handful of rules on how decisions are made (By humans? By an algorithmic "smart contract"? How do you allocate weight in voting?), how work is distributed and how people are paid (in tokens, presumably, whose utility for buying real-world groceries may vary), and you're in business -- maybe literally selling something, maybe just collectively creating something fun.
The Technology
The Legal Matters
We actually just covered some of the legal issues of NFTs, sort of, so let's look at DAOs in the real world.
Joi touts the innovative, token-based governance of DAOs, but it's really not clear how contract disputes, labor disputes, legal liability, taxation, and adherence to international norms should be enforced. Environmental and workplace regulations (not to mention rent, equipment and insurance of all forms) are pushed to the individual participants. Given that the vast majority of DAOs will remain too small to bother with, it can be argued that the deferral of resolving legal status is the right approach, but it's worth noting that this even includes the matter of legal jurisdiction.
Of course, I am not the first to think of any of this. In fact, Wyoming already has a law on the books on how to incorporate an LLC for a DAO. Tennessee also has such a law, signed into law in April 2022, and aims to be the "Delaware of DAOs". Services to help you set up a Wyoming DAO abound, and they encourage you to put in as much real money and to clarify these issues as completely as you can. Of course, the more completely you specify these things up front, the more it looks like a conventional small company with employee ownership, but there do seem to be differences. Consider, for example, a smart contract used to make decisions with impact outside the immediate group, such as buying or selling something. What if the transaction happens to be illegal in one or more jurisdictions? Who can be held liable, and how can the DAO be modified to make sure it doesn't happen again?
The Fit: Does the Tech Do the Job for Web3?
Transactions
Education
I don't see much overlap between web3 goals and education.
DAOs and Human Organizations
Instability, Scams and Ponzi Schemes, Burning up the Earth, and Other Such Minor Issues
Surely there is nothing more to be said by this point; a lot of people have pointed out problems with both blockchain and NFTs. Most importantly (in line with #1 in the list in the next section), I think it is absolutely unconscionable the amount of energy expended every day for such a small number of transactions. Proponents have talked for years about shifting from proof of work to proof of stake, but a) it doesn't seem to be happening, and b) proof of stake appears to exacerbate some governance and consensus problems.
Arvind Narayanan had a nice thread on blockchain, quoting a blog posting by Bruce Schneier. Bruce and the others he links to cover the core arguments pretty well, so I am not going to reiterate them all here. Bruce is one of the signers of the letter to Congress urging regulation of crypto finance. Quoting just a couple of Arvind's tweets,
[B]lockchain has so far proven useless. Worse, it's proven a costly distraction to people and communities who are trying to solve real problems...I can't tell you how many times I've talked to energetic students with great ideas about what's wrong with our institutions who, in a sane world, would be working on fixing our institutions but instead have been seduced by the idea that you can replace them with smart contracts.
Let me address just a few of the issues that I think haven't gotten as much attention as they deserve, at least in the set of things I have been reading.
Getting Squeezed
Miners join a network voluntarily, with the idea that they provide a service that others will pay for. The single biggest problem in this libertarian paradise, from what I can tell, is that very aspect. With only a handful of miners worldwide, miners could make a comfortable living and the environmental impact would be low. But as long as there is profit to be made, new miners will join, driving up the collective mining rate and increasing competition, such that the probability of an individual miner receiving the payout for successful mining goes down. Thinner margins will mean that only those who can efficiently run large-scale operations can afford to stay in business. As a result, there is a massive explosion in worldwide mining capability that today damages the environment and distorts the market for semiconductors, but that can't hold indefinitely. I figure that ultimately there will be a crash or consolidation of miners such that we end up with the Walmart of miners, with everyone else driven out of business. (We may be seeing this already.) Or, perhaps the better analogy is Subway franchisees.
Instability
"Pump and dump" and other scams abound, but an even bigger issue, if possible, is whether the system itself actually works and can be trusted to always work when we need it. As I write this in summer 2022, the last several months has seen a lot of instability in the cryptocurrency markets, even in the so-called "stable coins" that are supposed to be pegged to a currency such as the dollar, but in reality are still vulnerable to the fundamental issues of liquidity (one of the key concerns expressed by Paul Blustein) and whether or not someone actual wants to buy what you are holding at a time when you have little choice but to sell.
Lately I have been seeing ads for automated crypto trading accounts. Even in the highly regulated world of stock trading, algorithmic trading is potentially the most destabilizing technology introduced since the stock ticker itself. Lots of agencies oversee the large operators, and economists in every major bank, government and trading house must be scrutinizing the situation and looking for positive feedback loops that can cause markets to gyrate out of control. They have also instituted "circuit breakers" in case major problems develop. The financial crisis of 2008 may have shown that small investors can and will still lose their entire investment, but the existence of the big houses and the regulators reduces the number of scams and provides some (emphasis on "some") recourse when troubles occur. The cryptocurrency market has none of this.
Scrip and Taxes
A question: are DAO tokens just company scrip? I don't think so, but there are enough similarities to be disquieting. In the early 20th century U.S., with human mobility rising rapidly but not yet easy and the megalopolises not yet a majority of the population, many remote, small towns were essentially one-industry, even one-employer, towns. Employers often paid employees in scrip instead of U.S. dollars. Scrip could buy goods, at inflated prices, at the company store, or be exchanged for dollars at disadvantageous rates.
DAO tokens feel a little like scrip, a little like getting paid in stock. Tokens can be exchanged for goods, but only within a limited community. Because you aren't physically limited, you can shop anywhere that will take your tokens/scrip, but to participate in the broader economy you have to find someone who will change your tokens for money that works in your local economy.
Of course I understand that there are different kinds of tokens (some say as many as six), some of which are closer to currency and some of which are closer to voting stock. But if part of the design is to maximize liquidity and the velocity of the economy, won't even the stock-like tokens be traded rapidly and likely wind up concentrated in a few hands? I'm pretty unclear on how the dynamics of all of this is supposed to work out, how it is likely to work out, and what the failure modes are. But I'm pretty doubtful that DAO tokens and cryptocurrencies with little value behind them are ultimately stable.
Speaking of trading and the economy, if you are paid for work in some DAO's tokens, which you can trade for goods, when does it become taxable income? When it gets exchanged for local fiat currency? What if that is never?
Vision, Revisited
- Climate change and sustainable development. Without solving these things there is no community, no human security, no meeting of basic human needs.
- Data and information systems security. As IT people, this has to be Job One. Add in general systems stability (CIA = confidentiality, integrity and availability), and this is far more important than some random, clever new feature.
- Establishing personal autonomy, privacy and empowerment. Note that, to liberal me, this does not imply leaving people out there on their own, with no support.
- DEI. (To the extent to which it's different from the above.)
- The next billion. Kilnam Chon has a talk with the title Future Internet for the Other Billions. Ever since its inception, the Internet has always faced the challenge that adding the next group of connected people has meant reaching groups that are less technologically literate and perhaps poorer, and with greater environmental and infrastructure challenges of all sorts.
- Technologically, the end of Moore's Law. Estimates of data center energy consumption range from 70 TWh/year to three times that, or around 1% of the global total electric power generation. Although our efficiency has increased dramatically, we, as an industry, still have work to do.
Final Thoughts and Notes
..wait, I've gotten all the way to the end here without mentioning "the metaverse", or virtual reality worlds. Maybe that means...it's really a separate thing? FWIW, I was intrigued by VRML all the way back in the mid-1990s. It seemed like a good idea at the time. Whether the tech could keep up was another matter. I suppose, eventually, we will have Snow Crash-style virtual reality, but not yet. People -- including many who are unhappy with their real-world circumstances -- will probably like it. But other than a place to hang your virtual art you spent a lot of tokens acquiring, it's not clear to me that it's either necessary or sufficient for web3. (There have been lots of novels and short stories set in virtual worlds in the last four decades or so. One recent one I read is A Beautifully Foolish Endeavor, with a villian I swear is modeled on Jordan Peterson.)
Since I have invested two decades in working on a technical area or two whose real-world value has yet to be proven, I'm sensitive to criticisms of blockchain that it's a hammer in search of a thumb to hit. I have worked in large companies, in startups, and in academia in both Japan and the U.S., but people like Joi and many, many serial entrepreneurs have far more experience than I do, so you should probably trust them more than me on what works well and what doesn't.
One friend of mine said, "It's so complex it's hard to see how stupid it is." This friend has spent far more time studying all of this than I have. Until recently, I had not invested much effort in studying web3, and I am sure it shows. I will endeavor to keep learning, and may update this posting. If so, I will add a change log at the bottom.
A final note: I recently had a conversation with one of our students, Shaimay Shah, who is due to graduate momentarily. He said (quoted with permission),
I think the web3 tech is my generation's way to maybe make a difference...I want to look back 20-30 years down the line and tell my kids that I made a difference to society.
References
- Nick Weaver, "The Web3 Fraud", my favorite technical criticism on the technical costs of running a web3 site.
- Dave Farber and Dan Gillmor, Cryptocurrencies Remain a Gamble Best Avoided.
- https://www.msn.com/en-us/news/technology/bored-ape-yacht-club-the-nft-collection-that-s-becoming-a-real-offline-brand/ar-AAQT8yv
- https://www.vice.com/amp/en/article/y3v3ny/all-my-apes-gone-nft-theft-victims-beg-for-centralized-saviors
- https://moxie.org/2022/01/07/web3-first-impressions.html
- NFT Mona Lisa
- https://internetcomputer.org/
- https://dfinity.org/
- https://www.technologyreview.com/2020/07/01/1004725/redesign-internet-apps-no-one-controls-data-privacy-innovation-cloud/
- https://www.stephendiehl.com/blog/against-crypto.html
- NFTs being stolen:
- https://twitter.com/arvalis/status/1468814628276695041
- https://docseuss.medium.com/look-what-you-made-me-do-a-lot-of-people-have-asked-me-to-make-nft-games-and-i-wont-because-i-m-29c7cfdbbb79
- Inequality in crypto:
- Ashish Rajendra Sai, Jim Buckley, and Andrew Le Gear, "Characterizing Wealth Inequality in Cryptocurrencies".
- Khristopher Brooks, "Bitcoin has its own 1% who control outsized share of wealth".
- David DSHR Rosenthal, "Can We Mitigate Cryptocurrencies' Externalities?"
- https://twitter.com/doctorow/status/1493288001107021826
- Irving’s blog posts:
- https://blog.irvingwb.com/blog/2022/04/what-is-web3.html
- https://blog.irvingwb.com/blog/2021/12/the-metaverse-the-next-major-phase-of-the-internet.html
- https://www.mollywhite.net/annotations/latecomers-guide-to-crypto
- Links from Mike: (1) Useful background reading about the future of the metaverse: https://www.eurasiagroup.net/live-post/the-geopolitics-of-the-metaverse (2) especially the first and last sections. https://moxie.org/2022/01/07/web3-first-impressions.html
- https://conversationalist.org/2020/03/05/the-prodigal-techbro/
- https://decrypt.co/100687/ethereum-creator-vitalik-buterin-contradictions-web3-values
- https://twitter.com/VitalikButerin/status/1526378787855736832
- Joi Ito 伊藤穰一 on web3 town Yamakoshimura 旧山古志村
- Another article on web3 town Shiwa-cho, a town of 33,000 people in Iwate-ken.
- https://ssir.org/articles/entry/the_good_web#
- https://ethereum.org/en/developers/docs/web2-vs-web3/
- https://inrupt.com/solid/p frustratingly short on details, but Tim Berners-Lee's vision sounds pretty good.
- Ethereum consortium, Web2 v. Web3. From Ethereum's point of view, of course, but pretty level headed. What's missing is whether Ethereum is either necessary or sufficient, or even a way, to achieve the goals laid out.
- https://www.zenbusiness.com/how-to-start-a-dao/
- Cointelegraph: Deconstructing sidechains — The future of Web3 scalability.
- https://cointelegraph.com/news/deconstructing-sidechains-the-future-of-web3-scalability
- https://asia.nikkei.com/Opinion/Bitcoin-will-be-remembered-as-a-historically-insignificant-fallacy
- https://doctorow.medium.com/moneylike-d20f8279a72e
- https://blog.makerdao.com/the-different-types-of-cryptocurrency-tokens-explained/
- https://www.fsa.go.jp/en/policy/bgin/ResearchPaper_qunie_en.pdf
- https://www.nasdaq.com/articles/what-is-ethereum-name-service-and-how-do-you-get-a-.eth-web-3.0-domain
- https://www.researchgate.net/publication/260438995_Trends_in_worldwide_ICT_electricity_consumption_from_2007_to_2012
- https://www.nature.com/articles/d41586-018-06610-y
- Morgan Ames, "Laptops Alone Can't Bridge the Divide," a must-read on the failure of technology alone to solve problems in education.
- Folding Ideas, "Line Goes Up -- The Problem with NFTs", a two-hour, fast-paced dissection of NFTs and blockchain both. Mostly clear and mostly calm, but occasionally heavy on the jargon and slips into occasional fits of outrage. Surprisingly watchable, despite the length and topic.
- https://nymag.com/intelligencer/article/three-arrows-capital-kyle-davies-su-zhu-crash.html
- https://web3isgoinggreat.com/
- https://www.nature.com/articles/s41598-022-18686-8
