Web 3: New scam for new kids on the blockchain
Over the past 5 years, galactic brains have had time, thanks in part to a pandemic, to dream big about Web 3 after catching some inspirational podcasts and YouTube gurus. Or maybe watching Gilfoyle presents a ‘new internet’ on the last season of “Silicon Valley”.
What was so exciting for so many about Web3? Since no one could really agree on exactly what it was, it could literally be whatever aspiring entrepreneurs imagined.
Common threads emerged. Blockchain. Bitcoin and Ethereum. DeFi. Decentralization of organisations, infrastructure and data. Freedom from tech giants. Self-sovereignty. Privacy. Possibility.
All kinds of ideals that generate charismatic personalities.
Who cares about growing cloud adoption or better integration standards, when you can explore a whole new economy based on blockchain, cryptocurrency and NFTs? Why not tech talent leave standard Silicon Valley funded framework to live this Web3 dream?
When a space is overhyped and undefined, it encourages the emergence of the worst types of actors. Web3 never had a chance, with its uncertain crypto-economic roots and the use of blockchain technology, which has not proven sufficient for enterprise class.
Crypto-Schadenfreude: Sham, bank run & fraud
No one enjoyed media darling status in the Web3 world more than FTX founder Sam Bankman-Friedwho famously played video games on investor calls and shuffled around the trade show circuit in shorts as he donated millions to “effective altruism” charities and crypto-friendly politicians.
Now Sam is arrested and set for extradition from the Bahamas to face charges in the US, with FTX the most famous failure among several other falling dominoes (Lumen, Celsius, Gemini, on and on) in the crypto carpet.
It was fun mocking celebrity shill ads, but it’s not fun watching $2 billion in investor deposits disappear into the ether. Many VC whales, other DeFi companies and unhappy individuals were also duped and parked their money there as well.
There is no cash reserve regulation or FDIC account insurance in place for crypto, so when buyer confidence eroded, market makers sold, accelerating the “rug pull” effect. Ripples collapsed as much as $183B or more from the total market capitalization of cryptocurrencies.
It turned out that there is nothing new about this Ponzi scheme, one Madoff-like phenomenon my analyst colleague Jason Bloomberg has commented ad infinitum, even posing as one gadfly at crypto conferences saying it is of little use except for criminal enterprises such as money laundering and ransomware, for public fraudsters.
Blockchains in search of solutions
Besides cryptocurrency, is the most common term we hear in Web3 discussions blockchainwhich is a distributed ledger technology (or DLT) that underpins Bitcoin, Ether, Dogecoin and thousands more dogshitcoins.
If the cloud was just ‘a computer somewhere else’, blockchain is more like ‘just an attachment database everywhere else’ because of its decentralized consensus mechanism and cryptography. Even the first Bitcoin blockchain proved resistant to hacking unless someone found a way to steal user account keys by other means.
Although I am a skeptical analyst, I admit it thought there was someone sleeping value in blockchain, if a few properly managed projects came along that could create safer, smoother rails for adoption.
We have seen vendors with very good use cases for distributed ledgers, particularly in multi-party transactions, IP and media rights, legal agreements and audits, and proof of identity, where a blockchain can use a combination of transparency and immutability to provide a decentralized, shared record system – whether nodes are disclosed publicly or among permitted parties.
That still doesn’t make blockchain a valid replacement for modern databases and data warehouses, which already offer businesses more scalable back-ends for applications, with better security and governance controls.
The slow, energy-sucking processes of mining, recording and storing parallel blockchains have not proven sustainable for business use, aside from tracking a few heads of lettuce with e.coli on them.
Intellyx Roof
The main roots of Web3’s failure were not about technology, they were about misaligned incentives and the inevitable association of Web3 with crypto and NFT market madness.
Unethical players can rise to the top, confidently claim top-line growth and attract continued fundraising investment without mentioning the inevitable crash.
I have met early participants in the blockchain space with intentions for a better world with unique data models and applications particularly well enabled by decentralization. They didn’t build mansions on islands and take crypto bros out on yachts.
Who knows? When the incentives and risks of easy money are washed out of the market for good, the dream of global access to a new, decentralized internet of applications and values may one day be realized.
