Incomplete analysis:
Trying to understand "Web3"

Bottom Line Up Front

Web3 is the promise of decentralized payment systems, tightly coupled to services, that enable better and more varied enterprises. It currently has critical implementation flaws in end-user adoption, real-world interaction, security, and scaling. Solutions to these flaws are theoretically possible, but still distant. The question is how distant?


I should warn you that I am at the very early stages of discovery and comprehension with the blockchain ecosystem. I should also state clearly that I'm highly skeptical of the hype, a position born of disillusion from Web1.0. Take everything here with a shovel of salt over the shoulder. My understanding, thus far, of "Web3" is of a vision of where public computing and communications is going, rather than where "crypto" currently is. Those who transitioned from the Mosaic browser to Netscape will likely feel a strong sense of deja vu.

Two recent pieces that echo some of the debate are akin to "brick and mortar is dead" (from the same usual suspects unsurprisingly) and "that house of cards is built on poorly implemented sand". Neither piece is definitive, both filled with obvious flaws, but they probably reflect facets of The Truth.

Overview of Web3

My summarized version of the Web3 vision is that by leveraging publicly distributed, trustless cryptography, a contract and payment system can be tightly coupled to services, thus enabling truly decentralized coordination, execution, and delivery. A lot to unpack there. Like reality, that is an initial zoom-level of a Mandelbrot definition. A theoretical example may help illustrate:

A decentralized social network could be constructed, where hosting of the content is distributed among private servers, rather than corporate owned assets. Rules are "voted" on by the participants, or set "in contract" at the outset, if desired. Advertisers buy ads using a crypto currency and/or smart contract. The proceeds from advertising sales are distributed among the hosts (private servers) and the content creators (users) automatically. No actual corporation controls the site, but it is instead a programmatic "charter". The efficiency of the system reduces ad costs for advertisers and fairly distributes earnings to participants who create the value for the network.

Sound too good to be true? This is where reality meets "vision". You could tear apart the above theoretical example on so many fronts; from technical implementation, to operations, to regulatory challenges, to market dynamics, problems abound. Just as with Web1.0 the gap, between current reality and promise, seems to surround it on almost all sides. As it turns out, many (but not all) of Web1.0 visions proved correct... in the long run. Delivering a book via FedEx really did eat much of brick-and-mortar's lunch. But only after a massive forest fire killed most of the budding trees.

Mind the gap(s)

As I've been digging into the gory technical details of the current "crypto" world, and trying to understand the fundamental building blocks, I've started to get another sense of deja vu. I very well could be wrong but the whole ecosystem feels like an old chat room: exciting and promising, but divorced from reality, possibly in time, if not space. So let's put on the VR headset and start physically walking away from where we stand today, and explore the gaps and obstacles.

I may be over-fitting my pattern-matching here but many of the current problems echo Web1.0. The first of these is somewhat obvious if analogized loosely as "last mile infrastructure". Truly decentralized networking is hard. The existence of Tor, BitTorrent, and VPNs almost serve more as examples of failure than point to future paths of success for general consumers. And unlike the 90's, there are existing gatekeepers, rather than a lack of providers. Gatekeepers up to and including worst-case scenarios like the Great Firewall Of China. At a fundamental technical level you simply can't do what is promised, at scale, with the current technology. Doubly so if governments and gatekeepers work together against it. But betting against technology developing is probably a bad idea.

The bigger obstacle, that seems truly the elephant in the room, is the oracle problem (must read). Anything off-chain (i.e. 99% of the world) becomes dependent on these centralized gate-keepers, both from a fraud/manipulation perspective as well as a reliability/scaling perspective. There are less obvious paths to success here, even compared to the infrastructure. This is, I believe, where the promise of Web3 turns into the lies of Web4, similar to the transition from 1.0 to 2.0. I strongly suspect that this is what institutional investment is banking on.

Another promise of "DeFi" is in direct opposition to current implementation reality and that is Assurance. The current state of security with public internetworked computing is incredibly broken. In the legal/fiat/centralized banking world that was a "cost of doing business" that could be lived with. Mitigation and remediation were expensive and tedious, but possible. Participants from consumers, to merchants, to payment processors, to banks, had belt-and-suspenders systems to bolster assurance, despite technical failings. The current technology and implementations have none of that. They place all the eggs in a basket made of wet napkins. While I believe this is another solvable problem, the current gap is massive.

Like Web1.0 infrastructure, Web3 is incapable of handling successful, broad market adoption. Scaling is hard, and currently, on many blockchains, impossible. There have been some band-aids slapped on a few, plans for others, but there isn't yet a solid solution for this. Scaling problems exist at many points in the system. One example: at a very basic level a blockchain is simply a large, replicated log file (not a database as often described). It suffers from the same challenges that any other system would have with a log file that never gets truncated or rotated: eventually it breaks the physical bounds of the container. It also suffers from the other scaling problems that plague extreme-high-volume distributed, transaction logs. This is another area where technical and procedural solutions will likely be found, but they aren't currently implemented.


As I warned at the beginning of this piece, I am still learning. The technology of scaling and security I know very well and I have decades of scars.. experience. But this domain is new and there is likely much I am missing or misunderstanding. That said, my initial analysis is that most of the above mentioned critical implementation flaws are theoretically solvable. For me the question is: will any of them be solved in this first bubble? Or will it look like the massive blood-letting of Web1.0, ending in another version of Web2.0 (i.e. the opposite of the promise of decentralization)? Which of these budding trees will survive the probable forest fire? One thing that seems likely is that the Web3 idea has achieved a critical mass, despite critical flaws. It has become "too big to fail" of a sort, just as in Web1.0.

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