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Web3, a vague term describing a crypto-powered internet that has been hyped as the next step for the world wide web, could be a false promise of decentralization, according to New York University Professor Scott Galloway.
Technically, Web3 is described as a decentralized version of the internet where platforms and apps are built and owned by users. Unlike Web2 — the current web dominated by centralized platforms such as Google, Apple, and Facebook — Web3’s claim to fame is that it will use blockchain, crypto and nonfungible tokens or NFTs to transfer power back to the internet community.
In Web3 world, people will control their own data and bounce around from social media to email to shopping using a single personalized account, creating a public record on the blockchain of all their activity.
Web3 proponents claim their vision for the internet can cut the big tech middlemen out of the picture by completely decentralizing the web in much the same way cryptocurrency is attempting to seize control of world finance from large financial institutions, banks and governments.
Web3 is also designed, like cryptocurrency, to largely revolve around technology. It has been aided in this by the rise of NFTs, which are digital collectibles and other online files that can be bought and sold with cryptocurrency.
The concept of Web3 has been around for several years but it gained traction in 2021 due to high-profile names that suddenly seemed interested in its success or failure.
Some are skeptical of Web3, such as scholar Mat Dryhurst, a Berlin-based artist and researcher who teaches classes at New York University on technical and ethical protocols and the future of the internet.
“There’s a small group of companies that own all this stuff, and then there’s us who use it, and despite the fact that we contribute to the success of these platforms, we don’t have anything to show for it,” Dryhurst told NRP.
James Grimmelmann, a Cornell University professor who studies law and technology, said he believes Web3 is “vaporware.”
“It’s a promised future internet that fixes all the things people don’t like about the current internet, even when it’s contradictory,” he said.
To Grimmelmann, Web3 represents technologists reaching for the idealistic ethos of the dawn of the internet: everyone can freely use the information superhighway. That concept was long ago overtaken by tech companies.
Here are the five takeaways on the false hype promises of Web3, according to Professor Galloway.
Insiders are retaining a greater share of the tokens — an indicator that eventually Web3 could end up being another centralized network, Galloway wrote in a Jan. 19 Medium post.
Already the top cryptocurrencies such as Bitcoin and Ether are held by a tightening circle of insiders.
Just 9 percent of accounts on the Ethereum blockchain hold 80 percent of the $41 billion worth of NFTs on the network. The top 2 percent of accounts own 95 percent of the $800 billion supply of Bitcoin, and 0.1 percent of Bitcoin miners are responsible for half of all mining output.
In 2015, when Ethereum launched, insiders controlled 15 percent. But more recent Web3 projects have launched with insider ownership rising to 30-to-40 percent, according to Galloway. The potential to centralize is increasing with venture capitalist (VC) funding, and that is the true protocol for Web3.
OpenSea, the world’s largest NFT marketplace, is creepily like any other exchange platform. In exchange for promises to make transactions easier and safer, the company takes a 2.5 percent cut of every transaction.
Coinbase, the largest U.S. crypto exchange, operates the same way. It has industry high fees and a CEO who has granted himself and his VC investors dual-class shares with 20 times the voting power of regular ones. Dual-class shareholder structures are weapons of mass entrenchment and a synonym for centralization via corporate autocracy.
Web3 supporters claim that decentralized autonomous organizations or DAOs are superior to traditionally organized corporations, but many have failed. It is even not clear that most of these enterprises are even practically decentralized.
The DAO movement claims to be democratizing corporate governance. For instance, with a DAO, all investors can vote on the organization’s decisions.
Leadership, expertise, and accountability improve outcomes in centralized governance, and there is a reason why entities of any size adopt a representative model instead of attempting pure democracy, according to Galloway. Public companies employ representative democracy.
“For now, token-based organizations are operating in a pseudo-unregulated space, where their securities tokens are immediately liquid and purport to be immune from disclosure requirements,” Galloway wrote. “It’s likely, and overdue, that the SEC and the courts will soon bring crypto the same ‘boomer’ regulation that’s created the most robust exchanges and platforms for value creation in history. The key to these markets is that they provide investors the confidence, via rule of law, to participate.”
Web3 purports to cut out middlemen, unlike Web 2 (the current web), which relies on centralized platforms such as Facebook, Google and Apple, according to Galloway. Because of its “decentralized nature,” Web3 will instead use blockchain, crypto, and NFTs to give power to the internet community, according to its promoters.
Web3, together with other “decentralized” apps, rely on middlemen through an application known as infura that uses ETH nodes as a service, according to Professor Galloway. Other applications that act as middlemen include Alchemy, and Moralis.
Theft runs rampant on Web3. Losses in 2021 from crypto-related scams and thefts totaled $14 billion, CNBC reported.
Decentralization promised to replace the middleman with blockchain technology, but instead it created “a Coachella for fraud,” where anonymity and complexity protect the fraudsters from oversight or accountability, according to Galloway.
Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?
SEC Chairman Gary Gensler promised in August 2021 to come down hard on the unregulated crypto platforms and police crypto to the maximum possible extent. “We just don’t have enough investor protection in crypto. Frankly, at this time, it’s more like the Wild West,” Gensler said during the Aspen Security Forum. “We have taken and will continue to take our authorities as far as they go.”
Gensler has been vocal about the problem, but his commission has offered only a passive response.
The crypto world needs to be regulated and preventive measures put in place so that millions of Americans are not left holding the bag, Galloway wrote.
The entire space holds a big promise, but like every other emerging asset class or sector, it will require thoughtful oversight, regulation, and security.
Just as cryptocurrency has been used to support criminal activity by providing anonymous methods of payment with no government or bank interference, so Web3’s tokenized system could also help criminals remain untraceable by any government or law enforcement authorities.
The thing about illusionist tricks is they only work if you do not know what to look for, and more people are paying attention to the man behind the curtain.
Web3 has information asymmetry, it is impossible to fully understand it without technological and financial knowledge, according to yesterweb.org, a community of everyday internet users, regular people with diverse skills and interests who care about online spaces.
If website participation is somehow tokenized, it will be used and abused, and the losers will be those that do not know what they are doing.
The blockchain encourages information asymmetry by being dense, complicated, and full of fly-by-night scammers, but it discourages it by making all this difficult-to-understand information public.
It is, however, impossible to make a correct judgment about whether one is doing the correct thing if one does not have a complete understanding of what is happening with the money.
If website participation is somehow tokenized, it will be prone to abuse and the losers will be those who have no idea what they are doing, Web3 critics say.
READ MORE here on Web3.
