An Inspired Critique of web3
Smarter people than I have recently voiced their opinions, let's dissect
If you’ve been reading my blog in the last few months, you’ve seen that I’m very bullish on crypto and web3. But I’m also am a realist and aware of its flaws. The gas fees are prohibitively high, UX is close to non-existent, things aren’t decentralized, and usability still skews in favor towards early adopters as well as the wealthy.
While it’s possible this changes over time, as I described in my post The Web3 Onion, the current state of the web3 economy needs work. It’s still early innings and there are going be massive, positive changes over the next few years, but at times it feels like the tangible progress is limited to devs, traders, and early adopters. At least on the surface. But that’s how a lot of tech feels. Zooming out, the time chart below would be significantly steeper than is evident looking ahead.
Moxie Marlinspike, the CEO of the encrypted messaging app Signal, penned a profound essay last weekend that captures his skepticism more eloquently than I and most others. It also set Twitter ablaze. I highly recommend giving the piece a read because it’s clear, comes from someone who has an extremely technical background, and is partially the result of experimentation. The piece focuses on Ethereum, but isn’t limited to it.
Marlinspike’s first point revolves around web3’s centralization. Plainly, web3 zealots describe it as a decentralized network run through distributed nodes, not a centralized one (web2). However, nobody wants to run their own server to power the network. Not the average Joe, not businesses, and not anyone who isn’t mining. This isn’t new, the supply of nodes (validators) being scarce is what causes gas fees to be high. There’s a high barrier to entry from a price and technical knowledge standpoint, and that doesn’t appear to be changing anytime soon. This is abundantly clear, Marlinspike points out, by the fact that two companies have gained near monopoly share in their ability to actually make API calls to the ethereum blockchain. Remember, APIs are how computers talk to each other. In plain English, two companies dominate the reading and writing between the ethereum blockchain and all of the apps that sit on top of it. Marlinspike’s point here is that blockchains are supposed to be trustless and exemplify transactions through proofs (aka truth). The dependence on data from two companies makes blockchain interactions inherently require trust.
Secondly, Marlinspike hones in on the issue that the devices web3 participants use to interact with blockchains are not actually participants on the blockchain. This is evident through the API calls mentioned above, since there are several layers of infrastructure that separate all transactions.
A wallet like MetaMask needs to do basic things like display your balance, your recent transactions, and your NFTs, as well as more complex things like constructing transactions, interacting with smart contracts, etc. In short, MetaMask needs to interact with the blockchain, but the blockchain has been built such that clients like MetaMask can’t interact with it. So like my dApp, MetaMask accomplishes this by making API calls to three companies that have consolidated in this space.
MetaMask, a wallet you can store currency and NFTs in, makes API calls to etherscan to show your recent transactions, to Infura (one of the two companies mentioned a few paragraphs above) for your account balance, and to OpenSea to display your NFTs. Functionally, MetaMask is a visualization tool for NFTs, according to Marlinspike. His point is that web3 is naturally consolidating to a handful of places. Sure, these issues with OpenSea specifically have been raised before, but no viable alternatives have emerged.
Finally, Marlinspike gets to the prohibitive pricing of web3. He brings up a new and interesting point that all purchases on OpenSea, which requires ethereum, have an “artificial floor”. This gas-induced floor results in the prices of NFTs needing to hit a payment cliff where the owner can cover the transaction costs (gas fees). These fees would be significantly cheaper if transactions didn’t run on the ethereum blockchain but instead through simple credit card transactions. Credit card fees are a fraction of gas fees.
From my money (ha), a lot of web3 is the clouded financialization of things that don’t need to be financialized. Noah Smith of Noahpinion discussed something similar. There is literally *zero* reason to turn everything into a transaction, which much of web3 seems to gravitate to:
Imagine if everything you do online required you to decide whether to make a tiny payment. Send an email? Pay a few cents. Read one more paragraph of an article? Pay a few cents. And so on... It would be an utter nightmare. The psychic cost of having to decide whether to pay a tiny amount for a tiny piece of product, dozens or hundreds of times a day, would be enormous.
Faced with decision paralysis and regular micropayments, web3 shifts away from being a technological advancement and actually moves towards paying for things for the sake of paying for things. There are other use cases, of course, but the bulk of advancement, for now, revolves around monetary changes. Parts of that are great, to be fair, the way we transact and the way people like artists and musicians are paid are clearly antiquated. The flow of money has always gone to the wealthiest and the centralized. In the case of the internet, that currently means we pay to read, watch, etc. mostly through ads and or paywalls.
To be fair, some of the web3 hype at the moment is still fluff, smoke and mirrors, or scams (shout out Melania). Can Duruk from Margins has a bit more of a cynical view than I on this, but there is without a doubt some sketchy sales and marketing by people deep into crypto. Frequently known as shilling. Down the same vein, the space is partially blowing up because people think they can get rich quickly. Some will, most won’t, but as that momentum behind the fad and wealth starts to slow, we’ll likely see a slowdown. Celebrities won’t shill their own coins or buy NFTs as frequently. Retail investors won’t flood the space. It will be those with a thesis about the area and HODLers that stay active. But like I said, we won’t notice the change at first and then it’ll take over.
What is true, however, is that most of web3 is a blank canvas. It’s for builders who have opinions on what this future might look like. They’re building towards that goal and that’s what matters. As I mentioned earlier, much of the problems highlighted by the writers mentioned are about the current state of the ecosystem, and there’s a long way to go. I plan to keep tinkering, investing, and learning.