Discussion: Current issues and future development directions of Web3
Core point
1. The vision of Web3 should not simply be understood as “trying to completely replace the existing mainstream Internet technology architecture with decentralization and anonymity”. Instead, it should become a business design paradigm characterized by “low-cost trust bootstrap, verifiable interactive experience, and flexible business models” to complement existing web applications;
2. Web3 needs to explore and accept more dimensions of trust building methods. Simply using technology as the only source of trust is too expensive for ordinary users to understand and cannot fully meet their needs;
3. How to establish a more reasonable and sustainable profit distribution and management model among Web3 enterprises, users and stakeholders determines the upper limit of the future development of the Web3 track.
New to trading? Try crypto trading bots or copy trading
Foreword
At this moment, Web3 is full of noise again…
Recently, the field of Web3 has been surging, the huge uncertainty brought by the Fed’s interest rate hike to the market, the bank run of Luna, the tough attitude of the regulatory authorities, the constant hacking incidents, etc.
These series of bad news is destroying confidence in Web3 and casting a cloud over this burgeoning hopeful industry, Therefore, I think it is particularly important to re-examine the current status of Web3, explore the current core issues and outline a better development direction in the future. When we sit on the beach and enjoy the sunset, calmly analyze what we are doing, we will find that Web3 is still full of hope;
What is Web3
In order to understand the future of Web3, we must have a clear understanding of the current definition of Web3. It is not easy to explain this term. In fact, a criticized point of Web3 is its vague concept. Although it makes it seem to have infinite room for defense in the face of doubts, but it also greatly restricts its further development, because a loose and vague definition or vision is impossible to fully gather group cohesion and enthusiasm.
An article recently published in Harvard Business Review elaborated on the definition and development of Web3 in a more detailed and objective manner. It seems that we can see the answer, and in fact, this concept is not unfamiliar to practitioners:
Web3 uses a range of blockchain-related technologies，offers a read/write/own version of the web, in which users have a financial stake in and more control over the web communities they belong to.
A key feature emerges here is that in a Web3 world, ownership of digital assets is returned to the user. Taking twitter, the classic Web2 company as an example, since the data generated by users is owned by the platform, the platform can use these data to seek benefits through the advertising-driven revenue model, but in fact, these data are generated by users and should be users own, so the resulting benefits naturally need to be obtained by users, which is also a common story of Web3 practitioners criticizing Web2.
In such narrative logic, a consensus on the current Web3 design principles has gradually formed, which is recorded on Ethereum’s official website and seems to have become a bible for practitioners:
Web3 is decentralized: instead of large swathes of the internet controlled and owned by centralized entities, ownership gets distributed among its builders and users.
Web3 is permissionless: everyone has equal access to participate in Web3, and no one gets excluded.
Web3 has native payments: it uses cryptocurrency for spending and sending money online instead of relying on the outdated infrastructure of banks and payment processors.
Web3 is trustless: it operates using incentives and economic mechanisms instead of relying on trusted third-parties.
However, given the current state of the Web3 market, I think the interpretation of some of these principles has actually constrained further Web3 development, so it’s time to revisit these terms.
Current Issues with Web3
Although Web3 has not been around for a long time, it has achieved rapid development, the amount of financing has increased, and the market cap has also increased significantly. Everything looks so good, but there are also many voices of doubt. To sum up the current criticism of Web3 mainly includes the following points:
This is a dangerous testing ground full of fraud and black-box operations.
There have been a lot of negative news to support this point of view, endless rug pull and hacking incidents, fake transactions around tokens, a large number of phishing websites, allowing ordinary users to Asset security is facing a great threat. According to the FTC report, since the beginning of 2021, encryption scams have caused 46,000 people to lose more than 1 billion US dollars. Behind this heart-wrenching figure is that many originally happy families are burdened with debt. The voices trying to regulate Web3 companies will make the community full of resistance, and decentralization and anonymity will also technically increase the difficulty of regulation;
The token-based business model lacks continuity, and most companies have a very short life cycle.
It is undeniable that the token-based governance model and economic model are the key to the success of Web3, and have become the standard configuration of Web3 enterprises, which is different from traditional Business model, the most intuitive source of revenue for Web3 companies is mostly based on the growth of token value, but from the results, this profit model is usually not sustainable;
The tech isn’t practical (and it’s expensive), Web3’s environmental impact is vast and deeply damaging.
Critics believe that public blockchain technology is an expensive technology, and users usually need to pay expensive fee (Gas) to use this technology, which seems to go against the evolutionary path of any technology, and since the consensus security of Proof of Work is based on a brute force solution to a mathematical answer, this is usually an energy-intensive scenario. The annual e-waste created by Bitcoin is comparable to the amount produced by a country the size of the Netherlands.
Although we want to turn a blind eye, we have to admit that the above criticism is an objective phenomenon, so what is the problem that makes Web3 have such a negative evaluation:
1. The excessive pursuit of permissionless makes Web3 a “secret base for children”.
A permissionless peer-to-peer electronic currency trading system is the beginning of all stories. Decentralization and anonymity make the Web3 project based on blockchain technology a permissionless feature, which brings two direct effects: any business The development does not need to rely on the permission of the third party, and the participation of any user also does not need to rely on the permission of the third party. This looks very good, because for the first time in human history, the power of technology has triumphed over rights, and we have protected the majority of people and achieved “absolute fairness” through technology, but the reality may not be as we expected, this features also pose a great risk to most people.
Why is there such a big deviation from our original intention? The crux of the problem is that because of our excessive pursuit of permissionless, we have made “censorship resistance” the political correctness of Web3, and any regulatory authority has become the object of our resistance. The pursuit of absolute fairness is making this great cause a secret base for children, because “censorship resistance” frees us from taking any responsibility for any of our actions.
In fact, the establishment of absolute fairness constructed by blockchain technology is conditional. It requires the relevant participants to have no obvious deviation in the level of awareness of this technology and related business models. This condition may have existed in the early stages, when Web3 existed only on a small scale in technical forums, but with the development of Web3, more and more non-technical regular users are pouring in, this condition has actually been broken, and a great information gap has begun to appear between experts and ordinary users.
In addition, due to the resistance and fear of any supervision, Web3 lacks both sufficient protection means for ordinary users and effective means of restricting malicious behavior, which greatly restricts the development of the industry.As a result, the interests of most users cannot be effectively protected.
2. Excessive emphasis on incentives and economic models while ignoring the optimization of product experience makes Web3 companies lack the motivation to build a sustainable and stable profit model, which greatly affects their ability to resist market risks.
In the narratives of all Web3 projects, it is not difficult to find strong descriptions of their own economic models. The profits of most Web3 projects are usually built on the complex economic models established based on token incentives. At one time, people regarded this innovation as a reshaping of the current Internet business model. However, with the cooling of the global asset market, The volatile market capitalization performance and the death spiral of a large number of Web3 projects are making this view a great challenge.
The reason, I think, is because of this high capital efficiency profit model, many Web3 project parties overemphasize the design of incentives and economic models in the design of business models. We have become accustomed to creating new customer loyalty through sophisticated model design The demand for tokens pushes up the market value of Web3 companies through continuous purchase demand,The specific operating business is ignored by us or becomes part of our business story. After all, product development and optimization usually means a lot of time and money investment. The most direct impact of this phenomenon is to trigger the bubble economy and spawn a large number of “House of Cards” companies, and the high market value without the support of a competitive entity business is usually unsustainable, thus making the risk tolerance of the company extremely weak.
3. The trust establishment method of the Web3 project relies too much on the decentralized technical characteristics of the blockchain, and cannot provide a similar use experience to the traditional Web2 project in the short term.
Since the Web3 project is built on the blockchain, the performance of the blockchain technology has greatly affected the technical upper limit of the Web3 project. In fact, for a long time, subject to the development of blockchain technology, high energy consumption , high cost, and high latency have become the characteristics of Web3 projects, which greatly affects the development of Web3. Fortunately, now we have seen many solutions around performance such as POS, Layer2, Sharding, etc. This is a great phenomenon, and I believe that it will not be long before these stereotypes will be greatly reversed .
However, there always seems to be a voice that raises certain doubts about these technical solutions. The root of these doubts is that they believe that most of these technical solutions sacrifice the degree of decentralization to a certain extent, which leads to a decline in credibility. Such criticism usually comes from “right-wing tech geeks” who believe that only Bitcoin’s POW can bring ultimate trust, although this may seem like a conservative view, it also reflects the current blockchain-based Web3 projects to build trust It seems to rely too much on technology, which will inevitably affect the imagination of Web3 in the future. Therefore, how to find more ways to build trust and break through the limitations of technological development is another problem that we need to solve.
The future direction of Web3
Let’s re-examine the Web3 industry from an objective and rational perspective, and the solutions around the above problems seem to become clear:
1. Determine a clear and specific Web3 vision, distill and promote the most valuable features of Web3.
The Web3 industry is still in its early stage. Like a child, the development of the industry needs meaningful development. Only with correct guidance can it thrive. In order to provide better guidance for the development of the industry, we need to make a more comprehensive and comprehensive approach to the vision of Web3. specific discussion.
Before this, it was widely believed that Web3’s vision was that it aimed to create a better and fairer Internet. However, such a vague vision does not tell us what is a better and fairer Internet, and the specific path to achieve it, so that people have gradually equated decentralization and anonymity with fairness and beauty. This is a narrow minded.
I don’t think Web3 should be understood in a narrow sense as an attempt to completely replace the existing mainstream Internet technology architecture with decentralization and anonymity. Decentralization and anonymity are just the technical characteristics of the blockchain widely used in the Web3 industry, but this does not Should be the shackles that limit our imagination, it is time to rethink what the real value of Web3 brings us, I think the following points seem to be more representative:
(1) Low-cost trust bootstrap: By observing some successful Web3 business directions, it is not difficult to find a characteristic, whether currency or finance, these businesses were mostly monopolized by countries or super enterprises before the emergence of Web3, because the development of these businesses usually a strong endorsement of trust is required, and Web3 can involve these fields in a short period of time and achieve good results. The fundamental reason is that we use the power of technology to create a new paradigm of trust building, which greatly reduces trust bootstrap costs. The most direct benefit of this feature is that the scope of Web3’s business innovation becomes wider, and the right to innovate some originally high-threshold businesses is sunk to a wider user group. This is the core value that Web3 brings to us.
(2) Verifiable interactive experience: After figuring out the underlying value of Web3, we need to think about the core competitive advantage of Web3 products compared to other products, which will affect our product design ideas and marketing strategies. I think the core competitive advantage of Web3 products is that it can give users a verifiable interactive experience. We know that a technical feature of blockchain is that all data and operations maintained in this system cannot be tampered with, and are open and transparent , which allows Web3 products to prove to users, or users have reason to believe, that all actions and results in Web3 products can be verified. Therefore, in some scenarios where “self-innocence” is required and the degree of doubt is high, Web3 products will have a more competitive advantage.
(3) Innovative and flexible business model: Whether it is an economic model based on Token incentives or a model model based on DAO, it shows us that Web3 has strong scalability in business models, which is based on the premise of verifiability. , we have the ability to achieve orderly collaboration in more different stakeholder groups, as A16Z partner Chris Dixon said, Web3.0 provides a new way to allow all parties involved at different times. All can contribute while safeguarding their own interests.
Let’s go back to the original question, and after summarizing, a clear Web3 vision emerges:
Through a series of blockchain-related technologies, Web3 aims to create a business design paradigm characterized by “low-cost trust bootstrap, verifiable interactive experience and innovative and flexible business models”, complements existing web applications.
2. Explore multi-dimensional ways to build trust, expand business scope, and achieve a new round of growth.
Although reducing the cost of trust is the core of the narrative of Web3 storytellers, the current solution that uses technology as the only source of trust has higher trust costs than traditional centralized mechanisms. In the final analysis, it is because of this way of building trust The cognitive cost for ordinary users is too high, and ordinary users are the soil for the next development of Web3. Therefore, we need to find a way to build trust in more dimensions besides technology, and expand business by protecting the rights and interests of ordinary users. scope and achieve longer-term breakthroughs.
Supported by such a conclusion, it seems that we can hold a more open and soft attitude, facing those methods that seem to violate the principle of “decentralization”, and for the longer-term development of Web3, it is appropriate to give up as a “technical geek” “ of obsession and idealism. Taking regulation as an example, what we need to do is not how to avoid it as much as possible, but to discuss how to guide the determination of regulatory boundaries to make it better for the development of the Web3 industry. In the process of exploring this issue, the establishment of the vision is particularly important. I think that as long as it does not violate the basic characteristics of the three Web3 industries mentioned above, any method of protecting innovation and the rights and interests of ordinary users will give Web3 brings a new round of growth momentum.
3. Stable operating revenue may help us build a more efficient and sustainable Web3 business model.
I think we need to admit that for a long time in the future, enterprise organizations will still be the main unit to promote the development of Web3, because the decision-making and execution efficiency of the current DAO-based governance model is significantly weaker than that of centralized commercial organizations, so we will face an inexorable The question to be avoided is how to establish a more efficient and sustainable benefit distribution and management model among Web3 enterprises, users and stakeholders, which determines the upper limit of Web3’s future development.
Currently, we seem to have reached a consensus that most Web3 enterprises derive their income from the ownership of a portion of tokens that are locked and unlocked over time. However, this method may have shown its limitations. We can find the answer in the financial statements of Web3 enterprises. Usually, Web3 enterprises have extremely high non-operating income and very little operating income. This is because we have become accustomed to transferring the operating income of enterprises, and use this part of the funds to stimulate the high growth of Token, thereby maintaining a paradigm of higher non-operating income.
And this may be the root of the problem. Over-reliance on non-operating income, on the one hand, it is easy for companies to fall into the stimulation of only focusing on token prices, thereby ignoring the optimization and iteration of the product itself, allowing companies to cope with the risk of capital market fluctuations. On the other hand, with the release process of Token, the ownership of the project is gradually transferred to the community, which will easily make the product development plan of the enterprise fall into the trap of short-termism, because it cannot provide continuous incentives to the enterprise.
To sum up, I think that Web3 enterprises still need to keep the cash flow brought by a stable and continuous operating revenue in the design of the business model, which may bring more long-term and sustainable development for Web3.
Epilogue
We are at a crossroads of change and opportunity, so return to calm and re-examine what we love and we will find our glory.
