Web 3.0: A Brave New Internet 💻
Analyzing the Internet, Where We've Been and Where We're Going...
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“Isn’t it funny how day by day nothing changes, but when you look back everything is different.” - C.S. Lewis
To grasp the pace at which innovation is accelerating, it is important that we have some fundamental understanding of how we have thought, built, and iterated our way to where we are today as a species.
The forgotten catalyst of innovation is the printing press; before its invention in 1440, global GDP growth sat around 1% each year. That is enough to sustain a population but is far too low to support a growing one. It obviously wasn’t the case that prior to that point in time, everything that would be discovered, had been discovered. Instead, ideas died with the people who conceived them. Before the printing press, it was egregiously expensive to publish text. Books and manuscripts were collectibles and reserved for the wealthiest, most noble individuals.
The printing press allowed people to transcribe their thoughts, enabling ideas to compound over time, across regions and generations. The following three hundred years produced the ideas and experiments that would lead to the Industrial Revolution and create the foundation for business and manufacturing as they exist today.
Exponential progress began in the late 1980’s with the advent of Web 1.0. This static, read-only version of the World Wide Web was the first computational paradigm that changed the way people lived their lives. People went from offline to online to search for and purchase goods and services, but at this point could not interact with one another and contribute to the content being created. This was a decentralized version of the web whereby anyone with a web address could visit a particular website, not intermediated by anyone else. In Web 1.0 a small cohort of individuals would upload media files that would be downloaded by vast amounts of people. There were a handful of sites that listed all types of media: movies, music, tv shows, etc. This showed how media would come to propagate on the internet and made it clear that the future of all media would be made accessible via the internet.
19 year old Mark Zuckerberg coding Facebook
The inception of Web 2.0 in the early 2000’s added a social layer to the World Wide Web. This iteration of the internet brought about platforms like Youtube, Spotify, Facebook, and many others that would solve the most critical problem with Web 1.0: engagement. Social platforms created a mechanism for users to communicate with one another. They conjoined the ability to distribute media in connection with an identity (a profile) and the ability to communicate with fans to build an audience. But, because the creators’ content distribution is dependent on the platform’s infrastructure, the platforms dominate the relationships that creators have with their audiences (I’ll talk more about this later on).
This problem is framed well by Li Jin, “Creators are building their businesses on rented land when they are building on Web 2.0 platforms.”
Web 3.0 inverts this relationship and gives creators and their audiences the means to correspond and transact directly with one another.
When new technologies are in their infancies, most of the conversations and explanations are filled with plenty of daunting verbiage. Much of the non-technical population can be turned off by cult-like behavior from toxic maximalists who transact on sheer speculation and try to peer pressure others to join.
Bitcoin has its own role to play in Web 3.0, and I do not want to confuse the forest for the trees, but as referenced by Lex Friedman’s tweet above, Bitcoin is the poster child for toxic maximalism.
A common definition of the next computational paradigm is something on the order of, “the next major iteration of the internet which promises to wrest control from the centralized corporations that dominate the web today.” While this kind of jargon may excite developers and early adopters, it reeks with exclusivity and can be intimidating to the vast majority of people who are not familiar with the space. It takes the stance of an antagonistic disruptor rather than showing the immense value a new computing wave could bring.
As I diligenced my way down the Web 3.0 rabbit hole, I became increasingly convinced that it is the next computing paradigm that will change the way we view and value the internet thereby changing the way we live our lives.
In an effort to demystify this evolution of the internet, I am going to discuss what Web 3.0 is and why it matters.
Let’s get into it.
Blockchain is one of those buzzwords that gets thrown around a lot. Even before I knew the functionality and potential of decentralized applications, I would tell people something like, “I don’t know about crypto, but I am a proponent of the underlying technology.” While this was a method of deflecting my ignorance at the time, it's really a great take.
The rise of cryptocurrencies popularized blockchain technology, but it's important to note that the projects being built on blockchains extend far beyond just cryptocurrencies. Blockchains are the underlying layer that new projects can be built on top of. The excitement is that this infrastructure has unique properties that offer new capabilities and allow users to unlock new features that are not possible within the confines of traditional computing.
Cryptocurrency and NFT’s are just a couple of applications of the blockchain.
Blockchains are the backbone of Web 3.0 and the crux of an internet paradigm shift commensurate with the onset of PC’s and then Mobile. Much of the conversation is centered around DeFi (Decentralized Finance) and the disruption of the financial industry, and while there are financial aspects to Web 3.0, at its core it is a computing evolution.
The greatest deviation from traditional computing is that on a blockchain you can write code that makes strong commitments about how it will behave in the future. This being the case, no one person or platform can change the rules.
I’ll use Bitcoin to illustrate this feature: Bitcoin only has value to the extent that its supply is scarce. There will only ever be 21 million of them. That property of immutability is guaranteed by the blockchain. It doesn’t need to be guaranteed by the developers who programmed Bitcoin; it is guaranteed by the network’s architecture. This is revolutionary. With Web 2 companies, every server is controlled by a small group of individuals who could ultimately change the rules at any point in time.
For consumers, social applications built on a blockchain directly offer a solution to the hot button issue of censorship. Platforms censoring users has been fiercely debated by both pro-censorship advocates and supporters of net neutrality alike. There is inevitably a lot of subjectivity that goes into the decision to ban someone from the platform because the rules are opaque and constantly changing. Instagram could shut down my account and I would not be able to take any of my followers with me. This famously happened to the leader of the free world just a few months ago. Regardless of your position, I think most people would agree that transparency and predefined rules are better than a small group of product managers in Silicon Valley making ad hoc decisions surrounding deplatforming. Now there are several social media projects being built on blockchain, like Jack Dorsey’s Blue Sky. Decentralized social media platforms would have the rules around moderation, deplatforming, etc. baked into the code and have governance defined to the public from day one. In this instance, if someone violates the rules of the platform, they have no one to blame but themself.
Since the code can make strong commitments, you no longer need the governance of centralized platforms. Removing the middle-man gives creators and consumers transparency and a greater share of the profits.
Web 1.0 created a system where one had not existed prior. It was not an iteration of an earlier version, it was 0 to 1 innovation. One of the reasons it was so successful is because it was built on open protocols. It implicitly guaranteed developers that the system’s infrastructure would not and could not change. Open protocols established a level playing field for entrepreneurs to build upon and in turn galvanized a massive wave of investment and innovation.
Chris Dixon, a16z’s crypto partner, described it like this, “You’re more likely to invest in a country like the United States where you feel there is a consistent rule of law rather than a developing country where a dictatorship may privatize the assets at any time.”
Blockchains can also make commitments to the developers building applications on top of them. Unlike Apple’s App Store, Facebook, or Youtube, the rules are transparent from the very beginning and do not change when a company decides it needs to increase profits.
It is well documented that companies have a history of changing the rules, changing take rates on transactions, changing API’s, etc. Blockchains offer transparent, predictable, and consistent sets of rules that cannot change.
In the early days of Web 2.0, to get a lot of users on your application, you could build on top of Twitter’s API or Facebook’s API and benefit from their existing user base (API’s allow applications to communicate with one another). Once the central platform had established network effects and locked in consumers, they would change the rules of the game to their own benefit and shut off their API’s in order to monetize. The revenue models of these platforms are contingent on charging businesses to reach customers and serving customers ads based on the data they have accumulated.
People moan and complain about companies extracting their data to sell ads, but there is nothing inherently malicious about it. This is the business model that is well suited for the internet as it exists today.
In Web 3.0 you can build on top of any application without the fear of it being shut down because it lives on the blockchain. Rather than starting from ground zero each time, developers can build on top of existing applications, allowing innovation to compound really quickly. This compounding effect creates an asymmetric system where small teams can experience enormous breakthroughs. Developers working on new projects are able to focus on their core value proposition and allow the blockchain to take care of everything else. To take this one step further, other projects being built on the same protocol become legos that you can snap into place to add new functionality to your product. Web 3.0 startups can focus on what they do best and outsource everything else to the chain and to other protocols.
Instead of building isolated products, one of Web 3.0’s most attractive features is its interoperability. I’ll illustrate this with the DeFi movement. Decentralized Finance is the idea of building a new financial system without having central financial institutions. When people describe the way DeFi products are built, they commonly reference the phrase “money legos”.
There are 258 financial projects listed on DeFi Prime alone. Each project has its own unique features and infrastructure. This means if you were to pick 3 out of the 258 tools offered, you’d have 2,829,256 different combinations to choose from to build a new financial product.
Web 3.0’s feature of interoperability will give rise to a wave of innovation never seen before.
The major downfall of Web 3.0 as it exists today is that the user experience is severely technical. This imposes great limits on the current total addressable market. There are great developments that need to be made in order to make Web 3.0 user friendly to the masses. But, this dilemma is not unique to this computing paradigm.
Whenever new computing waves begin, there are new things they can do but there are also great weaknesses. The first iPhone’s were nothing like the ones we use today; limited apps, slow download speeds, poor cellular connection, etc, but it was cool, looked great, and had a new touch screen interface. But, as more applications were built, a flywheel was created where more people bought iPhones, Apple had more money to invest in R&D, and then chips got better, the camera got better, along with many other advancements.
To really understand the iPhone in 2007 you had to imagine that the weaknesses of the computer would be mitigated (it would get faster) and you would even have to add another layer to the thought experiment and imagine entrepreneurs and developers would take new features, like GPS, and come up with ideas that would be used by one hundred million users around the world, like Uber and Lyft. Facebook and Google existed before the iPhone but people will always build innovative new products by taking advantage of new capabilities that did not exist before, like Snapchat and Instagram.
The same thing will happen with blockchain and Web 3.0, you will have applications that port over from Web 2 but you will also have a wave of innovation where things are created that have never existed before.
All of this is moving very quickly but as I stated in my breakdown of OpenSea, “we are not in the early innings, the first hitter has not approached the plate, but people are making their way to their seats.”
To put Web 3.0 on the Technology Adoption Life Cycle curve below, we are somewhere between 0.5% and 1.5%. Great developments must be made to cross the chasm and reach the mainstream market but innovation is going to accelerate at a rapid pace.
Until next time ✌️,
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