Web3: A Neutral Take
Written and Published March, 2022.
Note: I wrote almost all of this in a single shot while on a 103 fever from COVID. I split it up into three parts for ease of reading, but most of the cursing is still in place. YMMV.
Web3 is the new polarizing thing. Everyone has opinions about it — it feels like everyone has to have opinions about it — and so lots of people are saying lots of things and most of it is noise.
I'm not a Web3 enthusiast. Full disclosure, I have about 10-15k invested in eth, most of that coming from an investment I made back in 2017. I tend to swing back and forth between bearish and bullish on the overall idea. I have some very smart friends who I respect deeply on both sides of Web3, so I guess it makes sense that I would end up being more or less neutral.
But man. People on every side of this thing are just spouting insane bullshit! Enough that I wanted to write down my own opinions, so that I can keep some sense of what's real and what isn't.
One caveat before diving in: I don't think any of the takes below are straw men, but I'm happy to be proven wrong and will update/issue corrections as needed.
Part 2: Now let's talk about the haters.
Like I said, Web3 is polarizing and everyone has to have an opinion. Crypto currencies have also made a ton of people incredibly wealthy, which means a ton of other people were left out of the 'thing-that-made-people-incredibly-wealthy'. I think some people are upset about this.
It's obvious that a lot of folks talking about why Web3 sucks also have no idea what Web3 is. Most of them are stuck repeating outdated talking points, likely sourced from Twitter. I think Web3 is actually innovative in a lot of ways, and as a startup founder I naturally hate when someone dismisses a cool idea because of obvious-reasons-everyone-in-the-field-has-already-thought-about. So here are a few 'crypto takedowns' that need to stop.
If you're griping about transaction rates and costs, you have no idea what's going on.
A pretty common talking point against Web3 is that transactions are expensive. In their minds, here's why:
- in order to record a transaction (or store data) on a block chain, you need to update the chain with the new information;
- because Web3 is decentralized, any schmuck has access to the chain and can add new information;
- this causes all sorts of problems, so we need a way to control who can add to the chain when;
- for complicated reasons, this process is slow and costs money (I'm not simplifying here -- I think this is about where most crypto enthusiasts and detractors knowledge actually ends).
For a technology that is supposed to be a medium of exchange, expensive transactions are a slam dunk argument against. QED, crypto is stupid, go home.
Except…everyone in the Web3 space knows that transactions are slow and expensive. And the web3 community has long since solved this problem. The solution is an 'l2 network'. The basic idea is to combine a bunch of transactions on the l2 network, and then only make them 'real' in a large combined batch. This allows transactions to be instantaneous for all intents and purposes, and distributes costs across all the people in the l2 network. I first heard about these in 2012. As a sophomore. In highschool. (In 2022, you have no excuse)
If this sounds crazy to you, I hope you don't use paypal or venmo. Because that's the exact same idea. (Guess what: transactions in the 'real world' were so slow and expensive that venmo became a verb!)
Even in its current state, Web3 has meaningful value.
I think some people heard that crypto was overvalued, and interpreted that to mean that crypto has 0 'real' value. These people might say things like 'the value of crypto will inevitably go to 0'.
The most popular existing use cases for Web3 are crypto currencies — international, unregulated speculative assets. No one party has oversight over the popular crypto currencies. Further, the popular crypto currencies have legitimate offramps into fiat currencies in most jurisdictions — including, most importantly, USD.
If you believe that 'the value of crypto will inevitably go to 0', you are stating that there is no value in having a globally unregulated mechanism for converting financial assets into USD. This is naive.
First, people do things that are illegal. If you do something illegal, and try to use fiat currency to profit off that thing, you are very likely to be caught. As a result, one of the earliest and most fervent adopters of crypto currencies was the Silk Road. In general, many transactions on the dark net occur entirely in crypto. These sorts of transactions have value — not in the sense that they are good, but rather that they provide actual economic output in the same way buying a burger does. These days, when the CIA sends funds to rebel terrorist groups, they do it with bitcoin. This means that popular crypto currencies will always have a baseline value equivalent to the shadow economy.
Second, there are billions of people in the world who are unbanked (estimated 31%). Many of these people are either too rural to have easy access to a bank, or live in failed states where the bank is likely to steal their money. Many of these people also have smartphones (about 83% of the worldwide population, so maybe half of the unbanked population, though YMMV on this one). These people are already using popular crypto currencies to do otherwise legal work, bypassing existing financial markets in their home countries. Obviously, this has economic value. Importantly, it has clean economic value, so we can't even ignore it by saying something like 'the government will regulate it away'.
Web3 is not only crypto currencies, but even if it was it would still justify some decent valuation.
Yes, data on the chain is immutable. So what?
In CS, an immutable object is a piece of data that can't be changed after it is created. The only way to 'simulate' a change is to create a new piece of data with the changes that you want. Programmers love immutability. Immutable data is much easier to reason about in a program. It's significantly less likely to have bugs and it's much easier to debug. And, importantly for Web3, immutability is critical for decentralized applications. See Rich Hickey for more.
A common complaint about Web3 is that once data is on a block chain, it's there forever. There is no way to delete things! There is no way to fix mistakes! Both of these complaints are, in a sense, true. They also totally miss the point.
Erasers were invented in the late 1700s. Before that, it was pretty hard to make changes to existing documents. People wrote with ink and parchment. It was immutable. If a Roman merchant made a mistake in his books, he wouldn't erase the mistake, because he couldn't — instead, he would add a new transaction that fixed the problem. Modern accounting still more or less does this.
Memory works the same way. If my friend Martin moves and gets a new address, I don't magically forget the old one. A new piece of data is stored in my head. Then, when I want to visit Martin, I mentally pull up the most recent relevant address, call that one "Martin's house" and go there.
We work with immutable systems all the time. We know how to build abstractions that hide immutability if we need to. And in many cases, tracking immutable data through a series of changes is incredibly helpful. We know it's helpful when we're debugging our code. When legislatures are settling property rights disputes, they are often doing the same thing by hand — of course immutability would be helpful there.
(Sometimes this argument is deployed against hype men who say 'we should put healthcare records on the blockchain'. In those cases, I am sympathetic. The answer, however, is to point out that sensitive data should never exist on the chain in the first place. Immutability is still good; arguing against immutability makes you look silly.)
A few other hot takes
- A lot of people like to say that Web3 has been around for 10+ years and hasn't accomplished anything yet. Are these people blind? Examples above of how web3 is already being used. But also, most of the fascinating technological developments are really happening in/around ether, which launched in 2015. By comparison, Linux started in 1991, and it also took around 7-8 years before it started being picked up by super-computer users (and later, everyone else).
- There are lots of scams in the crypto space. Arguably, NFTs as a concept are a scam. The existence of scams is providing an excuse for otherwise smart people to avoid doing their homework. Do the homework. Web3 has interesting use cases, some of which I dive into below.
It's hard to find great pieces on why Web3 works, especially if you aren't already in the relevant spaces. A huge issue is that there is so much noise caused by the hype. That said, I think Vitalik Buterin (the founder and public face of Ethereum) has a pretty compelling blog. I also recommend Karpathy's (head of AI @ Tesla) From Scratch Tour of Bitcoin for a very technical understanding of the problem. And, of course, there's the original bitcoin whitepaper, which I think is elegant, succinct, and intuitive.