An engineer's observations on Web3 and its possibilities

Hi all — I wrote these notes with my colleagues at PSL while trying to wrap our heads around the madness that is Web3/Crypto. I’m an engineer by background and sort of a skeptic by nature; I think of this piece as a collection of loosely connected, hopefully pragmatic opinions from a builder’s perspective.

Thanks for the great article! I wished the section on DeFi addressed the biggest elephant in the room, overcollateralization. A DeFi borrower always needs to lock in more assets as collateral than what they are borrowing, thus defeating the whole purpose for taking a loan aside from financial speculation. And there&#x27;s no real way to solve it: all mechanisms I&#x27;ve heard of either try to replicate some form of background checks on borrowers (not decentralised, and uses the real world), or claim to use real-world assets as NFT collateral (once again, uses the real world). Thus I can&#x27;t see a way for DeFi loans to ever be used for mortgages and other loans regular people actually need.<p>Of course DeFi is more than just loans and borrowing, but that&#x27;s an aspect that&#x27;s constantly promoted by evangelists so I think it&#x27;s an important point to mention.

Web3 requires retrofitting the web to use blockchain technologies to do what the web can mostly do already.<p>In &quot;Blockchains Are a Bad Idea&quot;, James Mickens gives several arguments against blockchain-based systems like Bitcoin:<p>See his presentation here: <a href="https:&#x2F;&#x2F;youtu.be&#x2F;15RTC22Z2xI" rel="nofollow">https:&#x2F;&#x2F;youtu.be&#x2F;15RTC22Z2xI</a><p>1. People have out-of-band trust relationships in real life which reduce the likelihood of malice. Bitcoin-style anonymous identities undermine trust relationships and are not needed for legitimate (not illegal) transactions.<p>2. Real life legal systems encourage good behaviors. If you have a dispute with someone, you can sue them. Bitcoin and related systems lack these protections.<p>3. Existing tools such as public-key cryptography and digital signatures can provide most of the functionality that applications need without the problems that blockchain-based systems have.

One interesting misrepresentation is this: “ Several innovations in distributed consensus design make Solana’s performance possible.”<p>Solana’s consensus protocol isn’t responsible for its performance, it’s the fact that they mandate higher performing machine SKUs and at least 500Mbs (recommending 1Gbs) internet speeds. They also had to largely centralizing and have around 1000 validators. Ethereum’s fees and performance are due to a push for decentralization instead of cranking up the max gas per block to a level that wouldn’t be feasible for someone at home to run a node.<p>I’m not sure why I’d use a blockchain that’s very close to being a centralized service. That’s the worst of both worlds, you don’t have censorship resistance you get with Ethereum and you don’t get the consumer protections you get with fully centralized services.

The &quot;delightfully weird&quot; aesthetic is MARKETING. The &quot;culture&quot;? Compromised.<p>In the same way that legitimate artistic spaces of old are just capitalised upon and harvested to make that &quot;hip bar&quot;, which is but a pale imitation designed to trick us. &quot;Web3&quot; is the Shoreditch of Web 1.0. There are no real things in it any more, no real culture, only rehashes created for profit!<p>People who are creating &quot;Web3&quot; content are doing it in order to capitalise on the throwback culture, the &quot;geekiness&quot;, it&#x27;s all done purely to further the cash grab, it&#x27;s co-opting and appropriating geek culture for personal gain.<p>It&#x27;s almost an artistic statement upon itself. Almost.<p>&gt; Protocols like SMTP (1981; email), TCP (1983; reliable packet transmission), HTTP (1991; web), and XMPP (1999; chat) all created immense value while capturing little for their inventors.<p>GOOD. &quot;Web3&quot; will be rightfully choked to death by greed.

Not going to lie, I thought and still think that the whole Web 2.0 thing was clever marketing and window dressing on top of fairly pedestrian but useful technologies. It was actually less of seismic shock than mobile first which despite being a bigger shift didn&#x27;t actually get a number.<p>As far as I&#x27;m concerned, Web3 is beyond this. It&#x27;s what happen when you let Ponzi schemers write the marketing material. I can&#x27;t for the life of me discern what&#x27;s of actual value from what is a fabrication in the pile of technologies put forward. It doesn&#x27;t help that I personally have yet to see a use for a blockchain which isn&#x27;t replicating an existing financial instrument while trying to avoid the eyes of the state.<p>I’m sure there is some good things in the middle of it all but I respect the authors of this article for having the courage to delve into the whole steaming pile. I certainly do not have it.

Excellent post. Succinctly cutting through the crypto hype-squad and addressing the concerns, unveiling the shortcomings and outlining the possibilities of the current Web3 ecosystem.<p>Highly recommended read.

I disagree with much of the other points but building on ethereum is amazing. Compare creaing AWS microservices and its crappy web UI with hardhat that emulates everything locally. Best practices do exist this is not new tech, Ethereum is almost 10 years old.

&gt; Hype-Free<p>&gt; It’s a hip bar in a club that a cooler friend had to tell you about.<p>Ok then.

Discord but access is granted by owning a specific NFT. Mint limited numbers of the tokens for specific groups. The value of the token ends up being based on the current members. Want in? Buy a token off someone. Done with the group? Sell it. Exclusivity is appealing to many.

I kept reading hoping for sections on IPFS and DAT&#x2F;Hyper. In many ways I&#x27;m more excited to see where peer-to-peer DHTs go!

Quite possibly the difference between people who are hostile vs favorably disposed to Web3 is whether or not they think traditional orgs work fine or need improvement. Frustration with traditional organizational pathologies is not universal.<p>The right comparison may not be with past tech revolutions. It may be to organizational evolutions like monarchy to democracy, women entering the workplace, the invention of the limited liability corporation etc. In each case there were people who thought it was unnecessary.<p>I suspect what makes Web3 <i>appear</i> extra contentious is that it divides core members of the middle class. Like artists for eg. Artists tend to be reliably anti-tech initially, taking pride in being socially middle class but economically underclass unless supported by other means.<p>Artists still largely depend on patronage but now are less beholden to institutions&#x2F;expert tastemakers (museums, grants, commercial art buyers like movies) or potentially tyrannical cohesive crowds based on ideological aesthetics (Patreon style). Web3 loosens the grip of both.<p>Web3 is Crowds3 too. We focus too much on authority figures and institutions. Crowds evolve too.<p>Crowd1 = geographic scene in a city that could ostracize you<p>Crowd2 = filter-bubble online crowd that can cancel you<p>Crowd3 = skin-in-the-game crowd that doesn’t subsume individuals<p>[credit to <a href="https:&#x2F;&#x2F;twitter.com&#x2F;vgr&#x2F;status&#x2F;1463182365555970049" rel="nofollow">https:&#x2F;&#x2F;twitter.com&#x2F;vgr&#x2F;status&#x2F;1463182365555970049</a>]

I think the biggest potential might be in creating companies and contracts. I would love smart contracts that with given payment also give me some shares of company.<p>Also investing in pre IPO for retail investors in scam-resistant schemes.<p>Public funding of projects. Voting with ones wallet but formalized and outliers and spam resistant.<p>Ability to profit from and measure public goods thus allowing to employ Capitalism there and get rid of EU bureocracy. One can dream.

It&#x27;s a good article. Much to think about.<p>I&#x27;m not sure that &quot;blockchain&quot; is central to &quot;Web3&quot;. &quot;Web3&quot; may be augmented reality, which doesn&#x27;t need a blockchain.

&gt; If the crypto economy has productive ends, they must ultimately rest here<p>Seeing this put as a conditional is refreshing after all the hype.

The way I see it is the idea of &quot;ownership&quot; creates a way to produce scarcity from story telling. If you have a good story to tell about why people should &quot;own&quot; your &quot;goods&quot; you can make a fortune. I think it&#x27;s very interesting in economy &#x2F; sociology &#x2F; psychology sense, and an amazing opportunity for cash grab. But I won&#x27;t call it a progress on web to call it &quot;web3&quot; because it does nothing on connecting people together like web 1.0 and web 2.0

Whenever I read about Web3 I always get the idea the feeling it&#x27;s an entirely self-interested idea or movement, and there is nothing idealistic about it. Instead of control being with a single corporation, control will be with an exclusive limited group of founders who got in cheap, and to which access is sold at a significant premium.<p>It pretends to democratize things, but rather moves from a monopoly to an oligarchy, which works great for the &#x27;in&#x27; group but not necessarily for those outside it.

I think if you take a Western&#x2F;developed country centric view, all of crypto seems pretty useless. In the rest of the world, you probably dealing with some or all of the following:<p>- Dysfunctional government - Hyperinflation - Limited access to financial&#x2F;investment products if any<p>The crypto space does have a huge amount of problems, but I think there&#x27;s some innovative stuff going on in crypto. You&#x27;ll end up writing it off if you just fixate on the speculators and the &quot;blockchain everything&quot; people.

&gt; <i>Protocols like SMTP (1981; email), TCP (1983; reliable packet transmission), HTTP (1991; web), and XMPP (1999; chat) all created immense value while capturing little for their inventors. Blockchains upend this, allowing inventors to capture considerable value for themselves.</i><p>That... seems like a huge negative to me. No wonder crypto enthusiasts give me the same feeling as relentless door-to-door salesmen.

&gt; However: just because you don’t need a blockchain to do something doesn’t mean the industry won’t settle on using blockchains to do it anyway.<p>Exactly, both blockchain skeptics and one-blockchain maximalists miss that people are doing what the market can bare. Do what the market can bare. Why die on the ideological hill? What utility does that have?<p>The path for founders is simpler. The founders bring their whole network to their ventures over and over and over again. That is projects launched on blockchain platforms right now.<p>Unless the non-blockchain space magically becomes competitive for founders, globally, of any background, <i>anonymously</i>, overnight, then that world isn&#x27;t competition. There are 3 trillion dollars within the crypto ecosystem that doesn&#x27;t need to be converted to cash to be used to fund new ventures.

&gt; However: just because you don’t need a blockchain to do something doesn’t mean the industry won’t settle on using blockchains to do it anyway. The technology industry is immensely path dependent. Particularly when buckets of money appear, feedback loops can form whose outcomes seem all but inevitable. Speculators and venture capitalists alike have inundated crypto with cash. There’s a certain reflexivity to it: when cash pours into anything, the intrinsic value of the thing is at least the value of the cash… and potentially much more, if that cash is invested productively! Blockchains may become the future — including for use cases where they are not natural fits — only because their story was told, speculated on, invested in, and told some more.<p>This bothers me: That we could end up with expensive, unnecessary systems that exist not because they offer a tangible benefit but because everyone just kept going along with things, collecting investor money and ignoring criticism until it was too late.<p>I don’t see that being apocalyptic necessarily, I think Adam Smith’s scythe will mow down any companies that make truly bonkers decisions on this stuff. But it bugs me that we could collectively spend years arguing about this and building blockchains and training a generation of blockchain engineers only for the near totality of blockchain stuff to fail for reasons that were evident from the beginning.

So .. TL;Dr web3 is nothing to do with the <i>web</i>, and is just the same old smart contract crypto hype we&#x27;ve all seen before?<p>No mention of the actual distributed web protocols like IPFS or Dat as far as I could tell.<p>Have I massively missed something or has the crypto community just co-opted the name web3 for their own non-web related stuff? How does the web factor in to crypto?

A pretty comprehensive overview that covers a lot of ground in the crypto&#x2F;Web3 landscape.

Today, I hopped into a Twitter Space called &quot;web3 for gaming&quot; and from the moment I joined until the moment I left five minutes later was talking about how crypto payments need to be better on mobile.<p>This feels like when web2 was coalescing as an idea. A lot of people were trying to shoehorn their pet technologies into the discussion. XML was holding on for dear life. It&#x27;s ridiculous and completely divorced from the topic at hand. My only explanation for the behavior is that it&#x27;s difficult to see the obvious absurdity when you&#x27;re deeply invested in a particular outcome.

Great job with this. Very nice overview.

If it doesn&#x27;t get broad adoption, can we reuse v3 or do we have to go directly to v4 and let everybody know that we don&#x27;t talk about v3?

It&#x27;s so weird to me how such a seemingly smart community (HN) can be so completely out of the loop with regards to one of the biggest sea changes to ever happen online.<p>At least spend a week or two as a web 3 USER before you make your own conclusions. Forget the investment side for a minute and use the dapps.

&gt; Smart contracts are deployed once and run forever; their code cannot be changed. The software development industry has literally zero experience with such a deployment model.<p>Programmers for cartridge-based game systems and many other embedded devices with no connectivity have decades of experience with this.

are there any other working examples of web3 except torrents?

Do we even have a generally accepted usable definition of what Web 3 would be?<p>I see cryptocurrencies and ledgers being mentioned and, at the same time, comments mentioning the concepts aren&#x27;t central to it. It seems we are the proverbial blind men describing an elephant.

Thank you for the no-nonsense writeup. Simply reading through it helped me solved many ambiguities and puzzles. Could you please provide some further readings, esp. high quality materials that have had helped you in the compilation of these observations?

Someone should let Amazon know web 3.0 isn&#x27;t serverless, they didn&#x27;t get the memo.

‘Web3’ is just new window dressing on the same old crypto casino. “Get rich quick!” is the selling point

Every time I read about decentralization, I remember this episode from NPR Planet Money (one of the best podcasts, btw). It&#x27;s about Libertarian Summer Camp where they tried to spend a day without fiat money. Gold standard everything. Turned out it&#x27;s actually pretty hard because you have to get gold, and make sure the gold isn&#x27;t fake, all by yourself. You bought a hotdog with the gold and now you have to worry about if it contains anything FDA-banned substances, etc etc.<p>cf. <a href="https:&#x2F;&#x2F;www.npr.org&#x2F;sections&#x2F;money&#x2F;2017&#x2F;06&#x2F;28&#x2F;534735727&#x2F;episode-286-libertarian-summer-camp" rel="nofollow">https:&#x2F;&#x2F;www.npr.org&#x2F;sections&#x2F;money&#x2F;2017&#x2F;06&#x2F;28&#x2F;534735727&#x2F;epis...</a><p>Being decentralized means that all the efforts that a central government is currently taking will be distributed to everyone, and now everyone has to worry about things that were taken granted before: basic safety, security and trust. This is why there aren&#x27;t many decentralized systems that caught on because their usability is pretty bad for most people.

Who defines this stuff?

Glad to see hype-free crypto posts :)

Am I the only one shocked at the 9k$ price tag for an avatar?

Is there a way to short &quot;Web3&quot; ?

missed an important development of IPFS

&gt; At the same time, smart contracts have some deeply problematic constraints: &gt; Smart contracts can’t be upgraded. Smart contracts are deployed once and run forever; their code cannot be changed. The software development industry has literally zero experience with such a deployment model.<p>I stopped reading here. First, this is factually wrong -- the software industry has tons of experience dealing with software that can&#x27;t be upgraded. Ever try to upgrade the firmware on a chip with no I&#x2F;O facility for doing so? The answer is you don&#x27;t; you instead focus on getting the code correct the first time, and possibly you build out a way to recall the product and replace it with a fixed version and price in the risk of needing to do so into the product itself. It can be done; it just takes discipline.<p>Second, if you don&#x27;t understand why smart contracts being immutable is a necessary and desirable <i>feature</i> of the system, not a bug, then you&#x27;re not going to understand much of web3. Like, think about it for five minutes -- if your smart contracts can be upgraded by default, and this code manages valuable digital assets, then their code can be replaced with code that steals those assets. Making this <i>very, very, very hard</i> is deliberate.

Why in the name of the lord would you block my ability to open links in new tabs (on the main site)<p>Edit: this site navigation experience is one of the worst i&#x27;ve ever encountered. I&#x27;m really interested in looking around but it&#x27;s so painfully slow.<p>Edit 2: the new tab is blocked on the main site, not on the blog post

Meanwhile, distributed and&#x2F;or encrypted technologies are enabling flash mobs to loot $200 jeans from Nordstroms.

I almost read the thing, but I can only read so many words in that horrendous font. Is this representative of the substance vs form stance of web3 ?

I don&#x27;t mind crypto as anonymous payment to buy illegal things online. And that&#x27;s all it&#x27;s good for, really.<p>Shady gambling, scams and shitty art is not the future.