Here is an exhaustive list of what smart contract blockchains are good for:
- Creating & managing on-chain digital financial assets
And here’s a list of what they are not good for:
- Everything else
Smart contracts are the best tool for the job of manipulating assets that live on the blockchain. Smart contract blockchains and designed & built for exactly this purpose, and none other. It is the single thing that they do well. They provide convenient native APIs to express any kind of logic that creates, transfers, pools, stores, or otherwise manipulates these on-chain assets, and allow you to safely group transfers into all-or-nothing transactions.
Blockchains & smart contract platforms are terrible for general-purpose, non-asset-focused computing. Even with coming scalability enhancements such as L2s, they will be several orders of magnitude slower and more complicated than using “centralized” cloud computing primitives from providers like Amazon Web Services or Google Cloud. Crypto networks are not generic “decentralized cloud computing”. They are more like decentralized asset computing.
Smart contract blockchains are not generic decentralized computing
One of the key innovations in the incentive structure of Blockchain networks is that they provide a way to sustainably fund the development and ongoing maintenance of decentralized computation networks— but they do so through the issuance of new native digital assets, which are hosted on top. These systems have “ownership” and “assets” inscribed into the very lowest level of their DNA — it is their raison d’être. They are (or may aspire to be) decentralized, but what they provide to builders is not so much a “decentralization layer” so much as an ownership layer. It would go against their technological grain to use them for computing tasks that don’t involve asset transfer in some way.
Web3 disrupts ownership, not “centralization” or “trust”
The implication we can take from this is that “Web3” has a chance to succeed only in applications that are ownership-centric. Good use cases will have to do with creating or manipulating new digital assets. Note that “manipulating” implies an extremely broad universe of financial services — borrowing & lending, trading, options, and sure, the occasional ponzi scheme. This is the domain of “DeFi”. NFTs are digital assets, so sectors like Play-To-Earn gaming, Metaverse, etc. can also fit this definition when the creation & manipulation of new assets is core to them.
This is not where the “Web2” giants have built their competitive advantages. Google crawls and web and sells advertising against search results; Facebook and Twitter sell advertising against their user-generated content; Microsoft sells cloud-based software to enterprises; Netflix produces original entertainment and sells subscriptions. None of this is disrupted in any way by the emergence of decentralized asset ownership platforms.
Users don’t care about decentralization — in Web2 or Web3
Decentralized, or more private, alternatives to the platforms of the Web2 giants already exist. For example, if you care about the way Google uses your data, you can use DuckDuckGo instead. If you care about the way Twitter or Facebook use your data, you can use Mastodon instead. Crypto is not necessary or helpful in solving these problems. The challenge for Web2 platform critics has been getting anyone to care enough about centralization or their privacy to actually switch to these alternatives.
Even in the Crypto/Web3 sphere, it has been proven by the market time and again that past a certain threshold, users don’t seem to care very much about how decentralized the platforms they are using are. Users have flocked to Binance Smart Chain, despite it being dominated by a single company and significantly less decentralized than Ethereum. Bitcoin maximalists have been tearing their hair out for years trying to educate users about how much more robust Bitcoin’s decentralization is than competitors, and have found largely that such entreaties fall on deaf ears. No crypto network has successfully bootstrapped user traction based on decentralization metrics (e.g. node counts, validator hardware requirements, etc), but rather on concrete functionality or incentives that they offer to users. Decentralization is far too invisible and too esoteric for most users to understand.
So, contrary to what you may have been told, Web3 will not disrupt Web2. Web3 will never be successful if it tries to compete with efficient, effective Web2 services based on superior decentralization. Web3 will not rescue us from large centralized Internet platforms owning your data.
Instead, Web3 is exploring a new design space around Internet-native asset ownership. If it disrupts anything, it would be our incumbent platforms around asset ownership, contractural agreement, and transfer— e.g. banks and the financial sector. That should be more than enough to be excited about.
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