It’s hard for someone who watched the gorgeous clusterfucks of Web 1.0 and 2.0 to get starry-eyed about Web3 (or Web 3.0, or whatever we’re calling it this week).
But a daily dose of cynicism is among the sundry bitter pills that older generations take with their morning coffee. You know, to stay regular.
So, I wanted to use this post as a reason to give the W3 champions the benefit of the doubt and educate myself better about the latest “new and improved” world wide reticulum.
Blockchains: Ledgers for Liberté!
Many of the folks espousing blockchain and cryptocurrency are enthusiastic to the point of mania, seeing the tech as pivotal to forging a brave new Web3 world. Most other people are, however, blockchain agnostic or just plain apathetic. It seems like too much trouble to figure out how the damned thing works. (Then throw NFTs into the mix and you have a whole new level of bafflement.)
So let’s indulge in some obligatory but necessarily incomplete descriptions before we continue.
WTF Is a Blockchain?
A blockchain is a glorified ledger. It records debits, credits, and closing balances. The magic word is “transactions.”
If you’re old enough to remember balancing a checkbook, then it’s a lot like that, except it’s digital. And somehow going to save the world.
So it’s a spreadsheet? Kind of. Maybe database is more accurate. The data are stored in virtual “blocks” that are virtually “chained” together. Thus, of course, the name.
Bored yet? Hang on. That chain thing? In theory, you can’t break or modify it. So, the database can’t be changed. Fraud is, therefore, tough, and you don’t need some trusted third party to vouch that everything is on the up and up. No traditional contracts and middlemen. In that sense, it’s decentralized. It’s all about the network, baby.
One common trope is that it’s tech forged by libertarian nerds who hate big government, big business and bureaucracies in all their nefarious forms. Therefore, we wind up with an amalgamation of something that pushes all their hot buttons: software plus finance plus ciphers plus decentralization plus implicit political ideology.
So, no, not a sexy look.
But make no mistake. Blockchain is not just for geeks. Not anymore. In fact, whole industries have bought into it. For example, energy companies use it to build peer-to-peer energy trading platforms so that homeowners with solar panels can sell their excess solar energy to neighbors.
Therefore, blockchain becomes solar chic.
Cryptocurrency Runs on Blockchains
Blockchains and cryptocurrencies aren’t synonymous, but they often go hand in hand. Cryptocurrencies are digital money that’s kept secure via cryptography so there’s no counterfeiting them. Most of these currencies are housed on decentralized systems where financial records are maintained and transactions are verified via blockchains.
Got it? Blockchains are the motors that make cryptocurrencies run.
A Very Short History of Cryptocurrencies
The first and best known cryptocurrency, Bitcoin (or BTC), is part of a longish history with its own mythology. The second most common and well known cryptocurrency is ether, or ETH, which is based on Ethereum technology. But these are just the big guns. Other currencies have been popping up like Mario mushrooms after a virtual rainfall. In fact, there are now more than 12,000 cryptocurrencies.
To keep things succinct, I’m just going to present a timeline that’s a combination of what’s on Greekforgeeks, CoinMarketCap and Wikipedia.
A Cryptocurrency Timeline
1991: Stuart Haber and W. Scott Stornetta introduce blockchain technology to time-stamped digital documents, making them “tamper-free”
2000: Stefan Konst publishes his theory of cryptographic secured chains
2004: Hal Finney introduces a digital cash system that keeps the ownership of tokens registered on a “trusted” server
2008: Mystery person Satoshi Nakamoto comes up with the concept of “distributed blockchain,” which provides a peer-to-peer network of time stamping
2009: Satoshi Nakamoto releases the famed white paper on the subject of bitcoin
2014: Various industries start developing blockchain technologies that don’t include cryptocurrencies
2015: Ethereum Frontier Network is launched, and along come smart contracts and dApps (for decentralized applications)
2016: Someone exploits a bug in the Ethereum DAO code and hacks the Bitfinex bitcoin exchange.
2019: Amazon announces its Managed Blockchain service on AWS
2021: In 2021, a study by Cambridge University determines that bitcoin used more electricity than Argentina or the Netherlands. El Salvador becomes the first country to make bitcoin legal tender, requiring all businesses to accept the cryptocurrency.
2022: The University of Cambridge estimates that the two largest proof-of-work blockchains, bitcoin and ether, together use twice as much electricity in one year as the whole of Sweden. The Central African Republic is the second nation to make bitcoin legal tender.
Raise a Glass to the WWW 3.0
Okay, with all the crypto and blockchain out of the way, let’s get back to Web3.
(Oh, wait, I forgot NFTs, or non-fungible tokens, which are like one-of-a-kind digital objects that can be worth big money as collectables. These seem insane to me, which probably means they’ll play some pivotal economic role in the future).
These are the chief technologies and implied principles of Web3. As with the previous two iterations the Web, the advocates for Web3 argue that just they want to make the world a better place (even if they happen to make a killing along the way).
The main argument against the status quo is that our current systems are too centralized and corporatized. Financial institutions want to control money, governments want to control legal frameworks, and the biggest tech companies want to control data. Daniel Saito sums it up well here:
The problem with this system is that is leads to inequality and injustice. The rich get richer while the poor get poorer. The powerful get more power while the powerless are left behind. The web 3.0 economy, on the other hand, is based on a decentralized system. This means that there is no central authority or institution that has control over the system. Instead, it is a network of computers that are all connected to each other.
This makes me smile and sigh. Meet the new techno-idealist, same as the old techno-idealist.
Taking a More Skeptical Approach
Does anyone really believe that the venture capitalists are funding this stuff for the good the humanity? Do we really expect, sticking with an example that Saito uses in his article, that the Nimbies are going away and making room for high-speed rail just because someone’s throwing bitcoins at the project?
At the same time, hope springs eternal. I truly want to think that these technologies will make things better in some ways. Maybe we can avoid a certain amount of corruption, fraud, and concentration of power through blockchains. I want to believe.
But there’s a darker side as well, even leaving aside the horrendous amounts of carbon-producing energy that cryptocurrencies consume in an era of global warming. In the article “Shifting Crypto Landscape Threatens Crime Investigations and Sanctions,” the authors note:
A …. potential cause for concern is the shift away from centralized exchanges, which are required to conduct identify checks for customers, to decentralized exchanges like dYdX and Uniswap, which is estimated to be the largest such exchange. Decentralized exchanges rely on peer-to-peer systems to operate. This means that several computers serve as nodes in a larger network, in contrast to centralized exchanges that are operated by a single entity. Decentralized exchanges make it easier for traders to anonymously buy and sell coins; most such exchanges do not currently comply with “know your customer” laws, which means that it can be cumbersome for government officials to identify the parties involved in cryptocurrency transactions. Because these exchanges are not run by a single entity, they can be exceedingly difficult to police and lack the sanctions-enforcement mechanism of more centralized exchanges.
Look, people are people. The worst ones want to accrue and maintain power at the expense of others. To the extent that Web3 makes this less likely, good.
To the degree it reduces accountability, however, we could wind up with greater concentrations of power. Power that can’t be changed–even theoretically–at the voting booth. Careful what you wish for.
Stay Hungry and Hopeful…But Also Skeptical
I like webs and networks (and wouldn’t have a blog called The Reticulum otherwise). I think networks are fundamental to the universe whereas hierarchies are only emergent.
So, to the degree we can move in the direction of efficient and effective networks, I’m all in. But don’t ask me to believe that Web3 is going to solve the world’s ills via the mechanics of blockchain and crypto. It won’t. The best we can hope for is movement in the direction of a fairer, more just and saner world free of power-hoarding, dangerous-tech-wielding dictator types. (We’re looking at you, Vladimir)
Free markets absolutely have their place. So do collectives. Ultimately what we want are socioeconomic and technical systems that allow us to find the right balance, one that keeps the network from stumbling into disastrous chaos on one hand or frozen intractability on the other hand. Both spell doom.
Those are, after all, the lessons of complexity theory, but that’s for another post.