“For all the good we’ve achieved, the web has evolved into an engine of inequity and division; swayed by powerful forces who use it for their own agendas.” — Internet pioneer Tim Berners-Lee
Our first two internet generations have connected us like never before. They also have generated problems we’ve never seen before either.
Let us remember. The first internet got set up to share information. The second internet got set up to let us interact better and download content faster. Neither generation got built to allow people to securely exchange value, fundraise, or make economic transactions. The rails of these systems — proprietary computer code — have been fragile, thus needing massive cybersecurity investments to set up multiple layers around them. The computer code itself was not battle-hardened cryptographic protocol.
As a result of the fragile internet code, the web has generated two kind of problems: bullies and weaklings. On the bully side, authoritarian governments can control information. Internet giants abuse personal data. The strong get stronger and monopolize internet functions, exacerbating social inequality. On the weakling side, the internet architecture is so fragile that financial actors prefer non-internet solutions to move value around. The banking system relies on outdated and costly databases — like SWIFT — and thus require high transaction fees, excluding billions from banking. Financial transactions are thus slow and expensive. Also on the weakling side, without secure internet infrastructure to transact with strangers, content creators (like journalists) cannot take part in a true peer-to-peer (P2P) economy.
Now is the moment to realize Web3 can solve or reduce many of these problems. Many commentators write about these very problems without seeing the soon-available technology underpinned by the emerging decentralized web known as Web3. While not a panacea, Web3 tech has emerged among our best solutions that’s being built now.
We define Web3 as decentralized internet networks, secure computing, and autonomous intelligent software. Web3 underpins the internet of value. It replaces Web2 — the internet of social interactions, as well as Web1 — the internet of information. Cryptographically-secured transactions link this web together. Web3 computer code creates the rules of the new internet road for blockchain vehicles, and cryptoassets are the gas that incentivize database owners to maintain the system.
Blockchain vehicles include decentralized apps (Dapps) that create peer-to-peer platforms such as Civil, which lets journalists sell their work directly to consumers. Journalists working under repressive regimes can now make a living without having to worry about politically-biased publishers to censor their work.
At its essence, Web3 revolutionizes where we place trust. It does this by forming a new constitution of the internet based on exchange with peers. We trust the code, not other people. The code is the constitution between a separation of powers — users, miners, and developers. As a team of economics professors led by Chris Berg wrote, blockchains are platforms for three-sided bargaining that convert energy-intensive computation into economically-valuable trust.
Web3 thus democratizes control of the internet, moving from the current model of castles owned by few toward a honeycomb model owned by its users. This transformation is the tech equivalent to the political transformation we have seen for centuries. To oversimplify our political transitions, we have moved from warlords to fiefdoms to oligarchies to republics to self-sovereign democracies. For this technological transition, we are moving from an internet republic to self-sovereign blockchains. It is tantamount to the 1776 move from monarchy-based government toward the decentralized, democratic rule enshrined in the U.S. Constitution.
Let’s take a look at each of these problems — and how Web3 can ameliorate them.
Old: Current internet has a castle-like structure.
The current internet has excessive centralization leading to rent-seeking, abuse of power, influence over content — and by extensions, our minds. Amazon and Microsoft control more than 60% of the web’s storage capacity. Two companies account for a majority of sign-in identity controls; Amazon is trying to catch up to them. When Apple sells apps on its App Store, it collects 30% of the app’s revenue. Rents from internet tech are accruing to an oligopoly of corporate interests. Yet regulating them is not the answer. Rather, we need to simply create a clear legal framework, light in regulation, to enable cryptoasset-based businesses to power Web3. It would let innovation compete with innovation.
New: Web3 will have a honeycomb structure that will enable P2P economics.
At its core, Web3 disintermediates economic transactions. Its peer-to-peer (P2P) structure ushers in the fourth industrial revolution, for the means of production get simplified so people themselves are producing services through freelancing arrangements (music, videos, journalism) or producing goods through 3D printing. The marginal costs of producing additional items becomes so low, it becomes a “Star Trek economy” where the press of a button delivers goods in a low-scarcity environment. Creative economy producers can finally capture the majority of their labors — a game changer for the artists and journalists out there.
Further, networked business models, powered by cryptotokens, show tremendous promise. It will produce a cambrian explosion in wealth generation, just like in the 1880s with stock issuances. They allow for greater share of profits, for rideshare drivers can earn six figures. These drivers can earn in tokens, not just in fiat currency, and when their networks grow, so will their tokens’ value. Already, journalists (via Civil venture), musicians (via Ujo venture), and movie producers (via Vevue venture) can earn directly from consumers. Already in Texas (via GRID+ venture), individuals with solar panels on their roof can sell their excess electricity to their neighbors through a peer-to-peer interaction on a blockchain.
Old: Old Boys Club for Access to Capital
It is hard for an entrepreneur to raise funds. Only the privileged few know a venture capitalist on the epicenter of them, Sandhill Road in the Californian city of Palo Alto. Women, rural, and emerging market entrepreneurs are at a disadvantage. Access to finance now is both socially and geographically hyper-centralized. Further, the accredited investor rule prohibits investment gains for most individuals at the pre-IPO level.
New: Security Tokens Enable Fundraising
Projects worldwide — such as in rural Indonesia — can now get funding through a new instrument: security tokens. These tokens transform tradable assets like equity and fixed income into digital assets underpinned by blockchain technology. The open technology is transparent so national borders become trivial. Security token markets remain open 24/7. It’s cheaper and faster to make trades.
What are their implications? Security tokens help one strive toward a meritocracy. Projects can compete on a security token portal without being overly disadvantaged because of their geographic location or relationships. Security tokens make small, private non-liquid securities more accessible for everyone.
Security tokens improve on the prior mechanism known as an “Initial Coin Offering” (ICO) which was being abused and still need improvement before their tokens can be realistically used as a fund-raising option for founders building next-generation distributed technologies. Token investors need assurances that the incentives for founders are commensurate with the success of the project. If law cannot provide these protections, then code must. There is an agility afforded to projects that do not need to worry about feeding lawyers or wading through arcane laws that are out-of-place in cyberspace. The DAICO model is one such example.
Old: Authoritarian Governments Can Control Citizens Via Web2
The current web is exploited by authoritarian governments and data mongers. China’s great firewall prevents its citizens from taking advantage of the internet — while China surveils its users. Citizens in other countries suffer when their governments shut off the internet as has happened in Egypt. Censorship reigns supreme when trying to access the current internet in too many parts of the world.
New: Web3 Prevents Authoritarian Government Interference
Web3 software is censorship-resistant, for the most part. It cannot get blocked from certain jurisdictions. By design it prevents double spending of digital assets. This increases the amount of trust society can place in a digital system. This trust increases with every smart contract digitally signed, every vote cast on a blockchain based platform, for every exchange of value. Blockchain doesn’t eliminate our need to trust human institutions; technology alone cannot solve the trust issue given people still need to be in charge to oversee a software protocol’s upgrades and disputes. Yet those who are in charge are much more distributed around the world and not confined to one building, geography, social class, political party, nor organization. Collusion is much tougher. Their diversity is their strength.
This revolution leads to rule of code just as much as the rule of law. Web3 can mediate behavior within code. We can architect society to more perfect, impersonal judicial systems, not a subjective court. We now have immediate feedback, such as monetary policy responding immediately to economic changes. This helps governance catch up with the super connected digital world we live in where all data points have increased resolution. Governments can now respond in real-time to events and economic transactions. For example, every taxation event can get reported to governments immediately without time lag or evasion.
Old: Real Estate Transactions Are Slow and Expensive
Currently, buyers have to pay thousands of dollars for superfluous “title insurance” that protects them for the minuscule chance someone else owns the title to a property. They have to wait one month for payments and deeds to clear via a title agency. They also have to pay outrageous fees to intermediaries such as 6% to real estate agents. Yet Web3 projects like OpenLaw, Fluidity and InvestaCrowd offer an alternative.
New: Smart Contracts and Crypto Tokens Allow For Quick, Seamless Real Estate Transactions
Web3 will allow us to progress from one month delays in property transfer to a matter of days. The OpenLaw project has demonstrated this in Australia with a Web3-based property transfer. OpenLaw’s Smart Contracts enabled houses and land plots to get transferred via tokens that represented the property. These tokens will be the backbone of tamper-resistant land registries that can improve tracking real estate’s chain of custody. It will curtail fraud and avoid traditional land registries’ risks — especially valuable in jurisdictions where corruption, the risk of destroyed records, or human error might be high. After seeing his country’s paper-based land registry get destroyed by an earthquake, Haiti’s former prime minister raves about Web3’s ability to preserve property records.
Old: Current internet lacks money construct
The current internet, on the digital realm, faces high friction in handling traditional “fiat” money from the analog realm. Fees are high to bring on money from the real to the digital realm — as high as 5% for credit-card transactions. Cross-border transactions are expensive — an average of 7% according to the World Bank. It takes up to 5 days to send money internationally — and with high fees. Today’s SWIFT banking system of inter-bank transfers has remained unchanged since the 1970s. Further, money movements on the internet are subject to outages and hacks — as seen in the February 2019 three-day shutdown of Wells Fargo bank, May 2018 shutdown of Visa, or the Target stores credit card data breach.
New: Web3 has a money construct — and thus a built-in bank
We now have natively digital tokens, or digital representations of value exchanged on Web3’s blockchains. These tokens are not rooted in the old-fashioned, tangible world. Thus they travel seamlessly with much reduced friction of intermediaries like money changers and banks. Payment tokens allow citizens to leverage a peer-to-peer banking economy where everyone has complete control of his/her assets in hand. Payment tokens enable innovative, next-generation market infrastructure of both financial and non financial use cases.
What then can Web3 do for banking inclusion? Payment tokens on Web3 infrastructure help new users break out of the current banking closed-loop fiefdoms, and encourage innovators to develop innovative blockchain services, including credit. A service such as BlockFi is already lending on basis of cryptoassets. Payment tokens much lower transaction fees eliminate overdraft fees because over-drafting funds on the blockchain is impossible. This is no small achievement. In the United States, PEW researchers found 15 percent of consumers — roughly 37 million adults — and estimated 21 million of these 37 million exited the banking system because of the high cost of overdraft fees. Moreover, cryptobanking is inherently mobile which can help those who do not feel comfortable entering banking institutions which can be classist. In rural Philippines, merely wearing sandals can mean not being able to use banks.
Old: Oligarchic Governance on Current Web2
In today’s internet, just a few companies decide what users see and can achieve on the internet. Google’s terms of reference are just, if not more, as pivotal in our lives as national laws. We hope that internet companies, filled with enlightened techies in sunny climates, make ethical decisions. Yet that too often is not the case — whether it’s Twitter censoring accounts based on ideology or Alibaba turning over data to be used for authoritarian-style imprisonment or the death penalty. It’s rule by oligarchic decree.
New: Democratic Governance on Web3
Governance on Web3 is puts power in the hands of its users, not a centralized overlord. Its strong cryptography removes the need for an all-powerful intermediary because it prevents double spending of digital assets and thus we can exchange value with strangers. Degree of trust in a contract signed, vote cast, value sent. Trust can increase when society uses a digital system.
Granted, the current Web3 governance is not as decentralized as it could be given the proliferation of “whales” who concentrate power through their massive token holdings, a cabal of “miners” who process a majority of transactions on certain blockchain networks, or the popular cryptowallets like Coinbase or Abra. Most people interact with cryptoassets through these centralized systems. While commentators have disdained on the reversion to centralized organizations in a supposed decentralized system, they are missing the point. That being how users have a choice. They don’t have to depend just on one tech company to sign on. They don’t have to just use Ethereum’s blockchain platform if they don’t wish — they could just as easily use Stellar, Zilliqa, or EOS platform if they wish. Web3 technology’s rich variety still grants us the power to spread out ownership, and with time, as more users own tokens, governance will become more democratic.
We thus are seeing a Rule of Code, not rule of law. It is what Web3 scholar Aaron Wright called lex cryptographica. Another scholar, Lawrence Lessig, posits that “Code is law.” We can meditate behavior within code. We can architect society to use an impartial judicial system, a blockchain. The blockchain becomes “the Truth Machine,” in the words of Wall Street Journal writer Paul Vigna. Yet it is not a trustless system. Instead, a more accurate view of blockchain is being a three-sided market. It must satisfy three distinct groups of users — buyers and sellers who transact, and miners who validate and record those transactions.
Thus Web3 encodes business logic which previously was enforced by a court in a subjective way. Now, we have immediate feedback. In super connected world, all data points give decision makers increased resolution on real-world events. Policymakers don’t have to wait for quarterly research but will soon have the ability to instantly respond to events and economic transactions. One imagines a Finance Ministry official proposing fiscal policy once seeing real-time tax being submitted from merchants to the government via smart contracts. Central Bankers can make monetary policy with much more fresh data. In short, blockchain lets us democratize data structures.
Old: Three Companies Control Identity on Internet
For sign-on identity, the internet’s status quo gives these three companies too much data. Other websites require a proliferation of passwords. For credit scoring data, the three major players control our data without our permission, and data breaches, such as that taking place at Equifax, are rife. For daily identity, we need yet a separate identity — and too much time spent waiting in waiting rooms to obtain it.
New: Decentralized Identity Systems Allow for Self-Administered Identity
In this decentralized identity system, users decide which data to give up. Identity solutions such as UPort or Civic let users to selectively decide which identifying information they offer to companies or authorities. To enter a bar in the United States, a user does not have to offer his/her whole address; the user can just give a date of birth. Accessing public services, a government only needs to collect relevant information once from citizens instead of requesting the information repeatedly. For citizens, this eliminates sitting in waiting rooms to fill out reams of paperwork. Citizens administer their own identity.
Old: Labor Hours Wasted in Manual Transactions
Today’s economies suffer from unnecessary labor that could be automated. Customs documentation, bank transactions, tax compliance, and insurance payouts are examples of such superfluous labor. This has a real drag on our economies. In Australia the minimum documentary and import declaration requirements policy is a 27 page document. According to IBM and Maersk, because of excessive paper-based customs paperwork, it costs more to bring goods across borders than it does to transport goods across the world from port to port.
New: Smart Contracts automate life
Blockchains can provide a rail on which business information travels. They help users keep track of assets — commodities, cargo, paperwork, contractural agreements. Insurance payouts, cars will have their own wallets to pay for parking, tolls, registration fees. Tax withholdings can go straight from the employer to the government on Web3 decentralized applications. Businesses can automatically undertake regulatory compliance. Private industry is developing the technology for blockchain-enhanced supply chains. Trade can flow much smoother through borders and customs organizations when done through blockchain rails.
This is because blockchain allows traders to manage and settle transactions in real time. A business can get into a complex contract with a client and fully trust that the contract’s conditions will get enforced automatically without third parties having to intervene. That is the promise of “smart contracts” where sellers and buyers sign a contract with the clarity that terms will get executed once certain conditions get met. Commodity trading will simplify and reduce the need for middlemen across the supply chain.
The points above are not meant to paper over Web3’s own challenges. It still needs speed/throughput upgrades (scalability), cryptoasset wallet/exchange security, more technical talent and organizational leadership, and interoperability with legacy systems. Most applications are all currently magnitudes better in centralized systems. Raw computing power might remain better in centralized systems. Nonetheless, we did not stop using Web2 in the dial-up era of the early 1990s nor scuttle it after the dotcom crash of the early 2000s or the Equifax data breach of the 2010s. We kept innovating.
Yet many challenges are not technical in nature but rather because of policymakers’ misguided perceptions. Because Web3 has a money construct embedded in it — the cryptotokens having value — Web3 has triggered a massive backlash from policymakers and incumbent industries who see it as a threat. Today, it is still illegal to use cryptotokens as legal tender in huge countries such as India, China, and Indonesia. Most banks in Singapore still refuse to let their customers convert fiat money to cryptoassets. As a result, these government and bank decisions only delay innovations’ potential while hurting their countries’ competitiveness. PundiX is Indonesia’s most known Web3 project yet it can’t even operate in its own country, for instance. Policymakers mistakenly believe they can separate the vehicle (blockchain) from the gas (cryptoasset). Thus, why build vehicles in a place where one cannot use the gas?
So there you have it — the future is ours if we are willing to grasp it. It is ours if policymakers are willing to realize that no financial/technological law is sacred, just as no business model is sacred. Policymakers will keep their laws or else their countries’ IT industries will become antiquated and Web3 won’t get adopted— such as updating laws that people can only spend its fiat currency for products and services. Blockchains’ implications go way deeper than just a way to speculate on the price of bitcoin. Greater value capture by content creators, faster economic transactions, a censorship-resistant internet, democratic data structures, much easier fundraising, seamless cross-border payments, and user-controlled identity are all here. A better world is possible. Let’s find ways to welcome it.