Exploration of the Web3 phenomenon with the Centre for the Study of Financial Innovation.
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The current buzz around Web 3.0 started with VC firm Andreessen-Horowitz, one of the major investors in the current tech boom. Andreessen-Horowitz have an amazing track record, they were early investors in Twitter, Skype, Facebook, Airbnb and many others. It’s success in picking winners has helped it grow assets under management to over $18 Billion. Recently it has become the leading investor in all things Crypto related. It’s founders. Marc Andreessen and Ben Horowitz have a long background in all things web related, they both worked on Mosaic, one of the most widely used early web browsers.
In November they announced[i] the next generation of the Internet was going to be something called Web3. Web3 (also known as Web 3.0) subsequently gained a great deal of attention across mainstream and social media.
And no wonder with claims such as,
“web3 technology can usher in a renaissance of creativity, innovation, democratic participation, and prosperity with few parallels in human history.”
Others such as Grayscale[ii], a fund manager that invests in cryptocurrencies such as Bitcoin and Ethereum, jumped in claiming Web 3.0 would generate annual revenues of one trillion dollars.
Andreessen-Horowitz paper, modestly called “How to Win the Future: An Agenda for the Third Generation of the Internet”, defined Web3 as being based on a set of technologies that had made headlines and fortunes (for some) throughout 2021.
“..technologies that encompass blockchain, cryptographic protocols, digital assets, decentralized finance and social platforms, NFTs, and DAOs.”
Basically anything that have evolved out of the much criticised but also much hyped world of Cryptocurrencies and Blockchain.
Beyond a new Renaissance, the paper claimed Web3 will solve problems that many people believe the crypto-industry actually creates such as massive CO2 production and facilitating ransomware attacks.
Not to mention many other problems of Big Tech firms such as Google, Facebook and Twitter, as well as the general problems of computing
“privacy breaches, disinformation, monopolistic practices,and algorithmic biases”.
As well as the terrible things unnamed authoritarian governments do using data and the Internet.
Andreessen-Horowitz claimed the common factor connecting all of these profitable but controversial businesses is Decentralisation.
“Decentralization is the organizing principle of our past and future success. Decentralized competition was at the foundation of American growth and dynamism in the 20th century when it helped the country outcompete authoritarian adversaries.”
But what do they really mean by decentralization and what is so bad about centralization?
It is not clear from their historical analogy. Were Ford, IBM or General Electric decentralized? Let alone the Federal government that built the highway network, created the Federal Reserve, led America to victory in two world wars and actually paid for the development of the Internet.
Perhaps centralization is more meaningful in the technical context of computing. Which should also provide some insight into why Web3 is better than Web 2.0 and why that was better than Web 1.0.
In spite of its ubiquity in most people’s lives, there is a widespread misunderstanding of what the Internet really is. Is it Google or Facebook or Whatsapp or the Apple App Store?
To quote Computer science professor Douglas Comer who was involved in the creation of the Internet
“The Internet only provides a packet transport; all other services run in hosts that attach to the Internet.”
Put even more simply it is a set of “pipes” that allow computers (and other devices) to globally exchange data in the form of “packets”. Allowing computers to communicate globally really is something as potentially revolutionary as the Renaissance.
These pipes work because of supporting rules for communication (called protocols), various technologies and the Internet Service Providers.
The Key protocols are,
Internet Protocol (IP) — which sets the rules for creating packets of information and getting them to their destination
Transmission Control Protocol (TCP) — the rules for managing congestion along the pipes and the loss of data
So is the is Internet centralized or decentralised?
The rules for the the key Internet protocols are created and updated by centralised organisations.
However there is no central computer through which all the data flows, in order to make sure everything goes to right place and is in the right format
At the physical level of network connections the Internet is better described as “Hierarchical” because of the way the network of computers, local area networks and ISPs connect together.
The services that people connect to via the Internet, Google, Facebook etc are generally run by central organizations that have control over design of software and the management of the servers on which it runs.
Whatever happened to Web 1.0?
The World Wide Web aka “The Web” consists of set of technologies built on top the Internet and the systems connected to it. The idea of the web was to make documents on any computer readable by any other computer that had access.
All that was needed to find and read the documents was a piece of software called a Browser and a URL (Universal Resource Locator) with indicated location documents, a standard for displaying information (HTML) and a process for managing communication between browsers and servers called HTTP (another protocol)
What we regard as the “Web” consists of the constantly changing set of documents and servers connected via the Internet. New technologies were continuously added that allowed web pages to become more sophisticated with images, sound and video and to become more interactive. Advances in browsers, HTML and the addition of new technologies continue to this day.
The thing is there never really was a Web 1.0 because the Web never consisted of a single system or standard that could be upgraded.
So what was Web 2.0?
The term Web 2.0 started to become from popular from 2006 onwards based on the ideas of Tim O’Reilly, a leading publishing of computing books.
“Web 2.0 applications are those that make the most of the intrinsic advantages of that platform: delivering software as a continually-updated service that gets better the more people use it, consuming and remixing data from multiple sources, including individual users”[iii]
Clear? Mostly he and others were talking about the growth of websites that relied on user generated content. Though many websites were heading in that direction before the term was popularised and many of the early (pre-web) services that connected to Internet such as Bulletin Boards and Usenets relied on users to provide content.
Web 2.0 was a hugely influential idea for several years. The attention it received was a veritable Tsunami compared to the ripples made so far by Web 3.0
Web 2.0 generated so much excitement because in 2006 much of the tech world was still in the doldrums after the bursting of the Dotcom bubble in 2000–2001. For those don’t remember or were too young, the Dotcom era saw major advances in the commercialization of the Internet but also huge waste, as vast amounts of capital were directed to businesses that were incapable of ever making a profit.
Every company that wanted funding, of further financing simply had to claim it was a Web 2.0 business to get attention from venture capitalists. Much like the use of the words “blockchain” and “AI” in fundraising today.
One person who did not buy into the hype was Tim Berners-Lee the actual inventor of the Web. When interviewed about Web 2.0 he said
“..I think Web 2.0 is of course a piece of jargon, nobody even knows what it means.”[iv]
The hype about Web 2.0 ultimately started to die down in 2007/2008 as the world plunged into another financial crisis.
The Real Lesson of Web 2.0 was that creating a somewhat vague label that sounds like a new technology can generate a lot of excitement and attract a lot of investment.
Web 3.0 Origins
Web 2.0 was so exciting that people soon started talking about Web 3.0 but with even less clarity. Web 3.0 meant a many different things to different people.
Ranging from the practical to various and often meaningless combinations of the word “web” with “AI”, “augemented reality” and “cloud”. A collection of ideas that is now merging into the re-popularised but not very orginal idea of the “Metaverse”.
In 2014 that Gavin Wood, co-founder of the Ethereum cryptocurrency made the link between Web 3.0 and blockchains (including crypto).[v] Fundamental to Wood’s vision of Web 3.0 was a mistrust of almost everyone “..we realise that entrusting our information to organisations in general is a fundamentally broken model.”
His Web 3.0 concept involved making many changes to both the web and Internet to deal with what he saw as the issues. Everyone would communicate and transact via pseudonyms. The locations of users would always be hidden. “Trust” would be spread across multiple parties and there would be a need for what he called “consensus engines”. An example of which was the Bitcoin mining process but the only thing he described as “truly Web-3.0” was his co-invention Ethereum.
Web 3.0/Web 3
The idea of Web 3.0 has gone in and out of fashion to varying degrees over the course of a decade
One of the big differences between 2014 and now when it comes to the blockchain flavoured version of Web 3.0 is the vast amounts of money to be made in the crypto economy.
Andreessen-Horowitz’s vision of Web 3.0 makes reference to the mistrust of corporations and governments but it is not at all clear how the set of crypto related businesses in solve any of the problems stated, or at least without creating a host of new problems.
Problems described result from many different causes rather than organizational or technological centralization. Such as the exercise of monopoly power, sloppy programming, insecure management of data and regulatory arbitrage. Problems all found, often to a much worse degree in the crypto world.
In spite of all the talk of decentralization, the businesses in Andreessen-Horowitz’s portfolio are clearly centralised businesses, with boards, managers and offices,
even if the products they provide are notionally “decentralized” in some way.
This has lead to criticism Elon Musk of Tesla fame and Jack Dorsey founder of Twitter. 3.0[vi].
Musk seems to think Web3 is a continuation of the Web 2.0 hype “I’m not suggesting web3 is real — seems more like a marketing buzzword than reality right now.”
Dorsey’s attacks Web3’s claims about the power of decentralistion by stating “It’s ultimately a centralized entity with a different label.”
Both Musk and Dorsey have personal reasons to be against ANDREESSEN-HOROWITZ’s model of Web3. Both are major promoters of Bitcoin. In the Web3 paper there is plenty of implied criticism of Bitcoin’s environmental impact. There is also the problem that most of Web3 applications rely on the sophisticated programming capabilities of blockchains like Ethereum. Capabilites that are missing in more primitive blockchains such as Bitcoin and Dogecoin.
Perhaps the most pointed criticism of Web3 comes from critics of the crypto industry such as Stephen Diehl.
“At its core web3 is a vapid marketing campaign that attempts to reframe the public’s negative associations of crypto assets into a false narrative about disruption of legacy tech company hegemony. It is a distraction in the pursuit of selling more coins and continuing the gravy train of evading securities regulation.”[vii]
What do you think?
· A hopelessly vague buzz word
· Not the true path to de-centralisation because it is not based on Bitcoin
· A way to keep the crypto scam going
· The path to a glorious future for the America, the Internet and maybe the planet