Enough With the Web3 Hit Pieces
We’ve gotten so many hot takes criticizing Web3 that it’s become a cottage industry. Some recently published takedowns of Web3 include:
Another Web3 critic, Scott Galloway, has had some interesting takes outside of crypto, such as reframing elite colleges as the ultimate luxury brand. But his recent hit piece on Web3 reveals a misunderstanding of Web3, focusing exclusively on tokens instead of the projects behind them. Let’s look at some quotes from his piece and discuss what is and isn’t Web3.
What’s Web3 and Why Are We Arguing About It?
What’s typical with Web3 hit pieces is that they focus on an aspect of Web3 they don’t like and then posit that the whole space is doomed because of it. Fundamentally, Web3 distributes hosting for both apps and data across a cooperating network of nodes. It marks a movement of internet infrastructure away from centralized servers run by tech giants (Amazon and Google) to a network of decentralized nodes. This is not necessarily an either/or argument as web 2.0 and Web3 will both eventually coexist together. The question is how much of the centralized server market share is Web3 going to take? Although I can’t give a definitive answer, I’d say it’s much more than these overly critical articles would have you believe.
Let’s start with the following quote from Scott’s article:
This so-called decentralization of power out of the hands of a few has, in fact, been a recentralization of power into the hands of even fewer. Take Bitcoin, for example. The top 2% of account addresses own 95% of the more than $800 billion supply of Bitcoin.
The first error here is confusing the token distribution of a platform with how benefits accrue to the platform’s users. Mr. Galloway is a business professor, which might explain his fixation on economics above all else. But someone doesn’t have to be a Bitcoin whale to enjoy its benefits as a store of value. Similarly, one’s overall ownership of the Ethereum network doesn’t impact the benefit they get from Ethereum’s dApps. Gas fees have indeed been a major impediment to users of Ethereum with smaller portfolios. Still, there are layer-2 solutions and EVM-compatible chains to allow any sized portfolio to participate in DeFi.
Also, I wouldn’t say Bitcoin and Ethereum are Web3 (with Ethereum most often getting mixed up as Web3). And neither are the following marketplaces he mentions:
OpenSea, the world’s largest NFT marketplace, … takes a 2.5% cut of every transaction. The largest crypto exchange, Coinbase, operates in the same way.
Coinbase is a centralized exchange that doesn’t have much to do with Web3 besides exchanging various Web3 tokens. Scott is hung up again on the tokens instead of critiquing the projects, which would take much more time to understand. Scott cites OpenSea as acting in bad faith based on their fee cut. But focusing on the economics misses the bigger critique that OpenSea censors content.
The VC Argument
The concerns about the concentration of power that Scott brings up with the various tokenomics models extends to his critique about VCs being the prime beneficiaries of Web3 projects. This echoes Jack Dorsey’s critique about VCs owning Web3 and not the users.
The potential to establish monopoly power by owning the rails — that is, to centralize — is increasingly what venture capitalist (VC) funds seek out and fund. And that’s the true protocol for Web3.
Again this is a fundamental misunderstanding of Web3. The only entities we could say own the rails are the miners who provide the decentralized infrastructure of Web3. As for the role of venture capitalists, projects must give tokens to VCs in exchange for investing capital and providing guidance. A good project partners with VCs aligned with their goals to maximize the project’s chances for success. So I would answer Scott that yes, the voting power in a Web3 project is concentrated with the core team and the early VC investors. This maximizes the long-term probability that the project flourishes and can provide lasting value for Web3 users.
Web3 will have innumerable privacy and data decentralization benefits. The centralized apps that will lose market share to Web3 dApps were only running on centralized servers because it was the best available infrastructure at the time. Web3 will allow a flourishing of new decentralized apps that were either not good fits in the old centralized architecture or apps that couldn’t have even been possible in the centralized model. This is a happy evolution where Web3 will do what it’s best at alongside the traditional apps that keep chugging along on centralized servers.
This post was written by the TEA Project, a dual-layer Web3 infrastructure project that allows decentralized apps to run at cloud speeds.
And yes, we’re currently seeking A round investors :)