Bitcoin was introduced in 2008 with the release of Bitcoin: A Peer-to-Peer Electronic Cash System, which explained how to design a decentralized cryptocurrency and digital payment system without the need for central banks or trusted intermediaries. Blockchain, the digital ledger for managing and certifying the validity of bitcoin transactions, was introduced in the same paper.
Over the years blockchain has transcended its original objectives, and has evolved in two major directions. One continues to focus on blockchain as the underlying platform for bitcoin, but it’s also become the platform for the large number of cryptocurrencies, digital tokens, and other cryptoassets that have since been created. The other is focused on the use of blockchain as a trusted distributed data base for private and public sector applications involving multiple institutions, such as supply chains, financial services and healthcare. The cryptocurrency camp is based on public permissionless blockchains, which anyone can join and require some kind of proof-of-work or proof-of-stake systems. The multi-institution camp is based primarily on private permissioned blockchains where participation is restricted to the institutions transacting with each other.
Given my professional interests, I’m particularly interested in the use of blockchains in business and public sector applications for two major reasons. First, I consider blockchain as a major next step in the continuing evolution of the Internet, helping us enhance the security of Internet transactions and data by developing a layer with the standard encrypted services for secure communication, storage and data access. And, longer term, blockchain technologies can significantly improve the efficiency, resilience, and management of complex global applications involving multiple institutions.
But, while I’ve been somewhat skeptical of the crypto camp, a number of intriguing crypto-related topics have recently captured my attention, including Non-Fungible Tokens (NFTs), Decentralized Finance (DeFi), and especially Web3. These various topics were nicely explained by technology columnist Kevin Roose in The Latecomer’s Guide to Crypto, an article in the March 20 SundayBusiness section of the NY Times.
“Crypto! For years, it seemed like the kind of fleeting tech trend most people could safely ignore, like hoverboards or Google Glass,” wrote Roose. “But its power, both economic and cultural, has become too big to overlook.… Understanding crypto now - especially if you’re naturally skeptical - is important for a few reasons.” These include:
Crypto Will Be Transformative. “[D]espite the goofy veneer, crypto is not just another weird internet phenomenon. It’s an organized technological movement, armed with powerful tools and hordes of wealthy true believers, whose goal is nothing less than a total economic and political revolution.” Its online culture is part of “a robust, well-funded ideological movement that has serious implications for our political and economic future.”
Crypto Could Be Destructive. If we had paid more attention to social media in its early years, we might have been able to steer it in a better direction and possibly avoided the serious issues that later surfaced in the mid-2010s. “Understanding crypto now “is the best way to ensure it doesn’t become a destructive force later. … No one knows yet whether crypto will or won’t ‘work,’ in the grandest sense. … But there is real money and energy in it, and many tech veterans I’ve spoken to tell me that today’s crypto scene feels, to them, like 2010 all over again - with tech disrupting money this time, instead of media.”
Crypto Is a Generational Skeleton Key. The crypto world includes diverse communities “that fight with one another constantly, and many have wildly different ideas about what crypto should be. … “If I were really trying to sell you on learning about crypto, I would tell you that it can be a kind of generational skeleton key - maybe the single fastest way to freshen your cultural awareness and decipher the beliefs and actions of today’s young people, … knowing some crypto basics can help someone perplexed by emerging attitudes about money and power feel more grounded.”
Roose’s Guide is organized into five sections, each consisting of a series of Qs&As aimed at explaining a specific crypto topic: The Basics, What are DAOs?, What are NFTs?, What is DeFi?, and What is Web3?. Since I’m most interested in web3, I’ll focus my discussion on that section.
Significant amounts of capital, talent and energy are now going into web3 start-ups. “Venture capital firms have put more than $27 billion into crypto-related projects in 2021 alone - more than the 10 previous years combined - and much of that capital has gone to web3 projects. … And the industry has become a magnet for tech talent, with many employees of big tech firms quitting cushy, stable jobs to go seek their fortunes in web3.”
A good way of understanding web3 is by comparing it to web1 and web2. Web1, - the original Internet and World Wide Web of the 1990s and early 2000s, - was primarily focused on publishing and accessing information on web pages using open protocols like HTTP. Web2, aka Web 2.0, emerged in 2005 as the next phase of the Internet, giving users the ability to create and publish their own content in personal website, blogs, and social media platforms like Facebook, Twitter and YouTube. Over time, most of this activity became dominated and monetized by a small number of global superstar companies.
There are multiple views on what web3 is all about. Some critics view web3 as little more than hype, a rebranding effort to shed some of the cultural and political baggage of crypto. “Others believe it’s a dystopian vision of a pay-to-play internet, in which every activity and social interaction becomes a financial instrument to be bought and sold.”
On the other hand, its proponents argue that web3 will replace today’s corporate mega-platforms with blockchain-based networks that combine the open infrastructure of web1 with the public participation of web2, and that it will usher a more open, entrepreneurial Internet and a middleman-free digital economy. Supporters believe that web3 will give creators and users a way to monetize their activity and contributions; that it will involve them in the governance and decision-making of the platforms supporting their work; and that it will give individuals more privacy and control over their data by being less reliant on advertising-based business models and targeted adds.
“Of course, this is a highly idealistic version of web3, sketched mostly by people who have a financial stake in making it happen,” said Roose. “The reality could be much different.”
Let me now briefly discuss another good web3 article, Why it’s too early to get excited about Web3 by Tim O’Reilly, founder of O'Reilly Media. “There’s been a lot of talk about Web3 lately, and as the person who defined ‘Web 2.0’ 17 years ago, I’m often asked to comment,” wrote O’Reilly.
The original Internet aimed to develop a global decentralized computer network “in which no one need be in charge as long as everyone did their best to follow the same protocols and was tolerant of deviations. This system rapidly outcompeted all proprietary networks and changed the world. Unfortunately, time proved that the creators of this system were too idealistic, failing to take into account bad actors and, perhaps more importantly, failing to anticipate the enormous centralization of power that would be made possible by big data, even on top of a decentralized network.”
Web3 now aims to replace trust and good intentions with a blockchain-based network where transparency and irrevocability are built into the technology. “I love the idealism of the Web3 vision, but we’ve been there before,” said O’Reilly. “During my career, we have gone through several cycles of decentralization and recentralization. The personal computer decentralized computing by providing a commodity PC architecture that anyone could build and that no one controlled. But Microsoft figured out how to recentralize the industry around a proprietary operating system. Open source software, the internet, and the World Wide Web broke the stranglehold of proprietary software with free software and open protocols, but within a few decades, Google, Amazon, and others had built huge new monopolies founded on big data.”
“Blockchain developers believe that this time they’ve found a structural answer to recentralization, but I tend to doubt it. An interesting question to ask is what the next locus for centralization and control might be. The rapid consolidation of bitcoin mining into a small number of hands by way of lower energy costs for computation indicates one kind of recentralization. There will be others.”
“If Web3 is to become a general purpose financial system, or a general system for decentralized trust, it needs to develop robust interfaces with the real world, its legal systems, and the operating economy,” adds O’Reilly. “The easy money to be made speculating on crypto assets seems to have distracted developers and investors from the hard work of building useful real-world services.”
In conclusion, if “Web3 heralds the birth of a new economic system, let’s make it one that increases true wealth - not just paper wealth for those lucky enough to get in early but actual life-changing goods and services that make life better for everyone.”
PS: Here is another good Web3 article I came across after posting the blog
Thanks for highlighting the distinction between web3 and crypto. The fog of crypto obscures the view to the decentralized, autonomous governance structure which is the aspect of web3 that I find interesting. Specifically, I'm interested in how web3 governance might disrupt healthcare by shifting more power to patients, and away from the incumbent institutions (pharma, providers, and payers) and their incentives. Please let me know if you run across any sources or people pushing on web3 and DAOs in healthcare, especially my main interest, cancer care (cancerhackerlab.com).
Posted by: Brad Power | April 01, 2022 at 12:20 PM