Crypto is rebranding itself as ‘web3′ and the mainstream tech community don’t like it one bit. But they’re missing the point: for good or ill, crypto’s mission to redefine finance is where the constructive feedback and critical thought should be focused, not a strawman about building a decentralised Facebook
Ryan Selkis (@twobitidiot) made an interesting statement the other day:
Why the ‘viscerally negative’ reaction to ‘web3’?
It’s possible Selkis is referring to negative reactions from within crypto. But there’s also no shortage of pushback from elsewhere. Stephen Diehl’s ‘take no prisoners’ posts are a good place to start. Or you could look here, here, here, here or here.
The pushback is occurring along a wide front but it’s important to note that Selkis specifically references ‘web3’, not ‘DeFi’ and not ‘crypto’. And that’s important. After all, there has never been a shortage of critics of permissionless blockchains over the years, including me at times. And plenty of people feel queasy at what they see as rampant speculation and fraud in pockets of that community. But Selkis is right that, in the last few weeks, it feels like the nature, and volume, of the criticism has changed, perhaps decisively.
Why? What was the trigger?
If I were to ask Diehl, I suspect he’d point me to a tweet like this one:
But it’s not as if Diehl has only just started criticising crypto this week. So why is his message only really being heard now? Why not three years ago? It seems like all the hate started to resonate and coalesce just last month.
Why all the hate now?
The reality is that most technologists at most firms are using regular technology to solve regular business problems. So those in the blockchain space probably overestimate the extent to which the rest of the tech industry is paying any attention at all. That’s definitely the case for the ‘permissioned‘ blockchain ecosystem I inhabit and, contrary to what you’d think from watching the Twitter echo-chamber, I suspect it’s true for the permissionless wild-west world of crypto too.
To the extent mainstream technologists pay any attention to the permissionless cryptocurrency world at all, it’s through the lens of ‘other’. I think the general thought process is this:
“There’s that thing happening over there. Some of the people seem to be getting very rich. They certainly make a lot of noise. Some of them seem to be a bit infra dig, some are probably scammers. Maybe I’m a bit annoyed at not having got in on it when there was money to be made. And my gut feel as a technologist is that some of the claims just don’t stack up. But, whatever…. If I argued with everybody I thought was wrong on the internet, I’d never get anything done. It doesn’t affect me or my work. So I’ll just ignore it and get on with my life.”
That, I think, explains the ‘traditional’ tech world’s view of blockchains until a few weeks ago.
And then somebody – in either the most brilliant rebranding in history – or as a truly insane and hubristic act of overreach – decided that building a new financial system wasn’t enough, and that permissionless blockchains were somehow also going to be the solution to the dominance of the large tech firms.
Hey… if you can reinvent money, why not also fix the world’s political system and broken social structures too?! So somebody dusted off Gavin Wood’s old ‘Web 3.0’ thesis and announced to the world that the future of the world wide web was the public permissionless blockchain tech stack.
Suddenly, as in literally overnight, the calculation being made by normal technologists doing normal work changed. The weirdos doing crypto stuff were no longer an interesting curiosity. They were now loudly and aggressively stating that their ideas and their technology were what all those normal developers and firms were going to be using in the future.
Oh, and that it was their tokens that everybody else would have to buy in order to participate.
Now, if you responded every time some crazies on the internet said they were coming for you, you’d go mad. But when they’re as well-funded, vocal and – yes – influential as the crypto community, one does feel a need to react.
So, suddenly, anybody in a leadership position in the existing tech world had lost any ability to remain neutral. Anybody who did not believe that this was the correct direction of travel felt they had an obligation to say so.
And, guess what? It turns out there are a lot of people who don’t believe that public permissionless blockchains have anything to contribute to the gnarly societal problems exposed by the exposure of the human race to global social media for the first time in our history as a species.
They were perfectly fine to sit on the sidelines whilst it didn’t affect them. But, now that it does, they’ve come off the fence, and not just about the web3 angle, but about the whole edifice.
So it’s entirely unsurprising that the ‘cryptocurrencies and decentralised finance are the future of the web’ meme has run into such violent opposition!
It’s as if the regular tech world was entirely happy for crypto to carve its own furrow as long as it was well away from anything important, as they saw it. But, once their territory had been invaded, they had no choice but to fight back. And fighting back is what they’re doing.
The mystery to me is why anybody in the permissionless space is surprised?!
Perhaps they’re not surprised. Maybe some of them quite like it. After all, as the saying goes, ‘then they fight you’ is only one step from ‘and then you win’.
But I can’t help thinking some of the critics we’re hearing from today are missing the point. There is a deep criticism we could make, but it’s nothing to do with ‘web3’.
Maybe this is what Chris Dixon was thinking of when he tweeted this:
So in the remainder of this piece I’ll sketch out what I think a valuable critique might look like. But first a short interlude.
Interlude: never annoy a pedant
There’s a fun alternative explanation for what’s going on that I’d regret not sharing.
It’s possible that the entire backlash against the ‘web3’ movement stems from the fact that technologists are pathologically pedantic, and those advocating web3 have misunderstood what Web 2.0 was!
Web 2.0 was nothing to do with Facebook, Google and Twitter’s dominance. Web 2.0 was all about architecture and, in particular, the emergence of Ajax techniques and the associated API-level integrations between sites that were enabled by the widespread adoption of REST that turned out to be needed to make it work. This is basically the point that Tim O’Reilly recently made.
But the fact that the web3 narrative doesn’t acknowledge this is the kind of thing that can really annoy pedantic people. Somebody literally is wrong on the internet!
So don’t discount the possibility that the web3 blowback is caused by nothing more than a few technologists getting really upset that some people don’t know their history…
Never annoy a pedant.
The case for the defence? The real critique?
If permissionless blockchains are not the future of social media, does that mean, as Diehl argues, that they are worthless, parasitic, negative-externality generators? Maybe. But it’s not obvious to me that this is the case.
And I write this as somebody whose day job at R3 is building and selling solutions based on private or permissioned versions of this technology. The permissionless blockchain world do not usually see me as a friend.
But if one strips away all the hype and complexity, there’s a very simple story one can tell about permissionless crypto. It goes like this:
First, there was a business requirement: Satoshi set out to implement a system of digital cash that is censorship resistant.
The entire architecture of Bitcoin emerges from that requirement. I make no value judgement as to whether the requirement is legitimate. But “censorship-resistant digital cash” is the business problem for which Bitcoin is the solution.
But that was just the starting point. The explanation for the present Decentralised Finance scene requires a couple more steps.
First, censorship resistance turns out to require a system that is permissionless. After all, if you need somebody’s permission to use the system then in what way is it censorship resistant?
And permissionless platforms for the exchange of value turn out to enable more than just digital payments. Witness the emergence of projects, primarily on Ethereum, offering lending, trading, financial derivatives, fundraising and more. It’s as if everything that the investment banking industry spent the twentieth century building is being rebuilt in the permissionless crypto sphere. And, with the emergence of stablecoins, there isn’t really anything you can’t in principle do in the crypto world that you can do with traditional finance.
And so it’s not hard to imagine most of what you can do in the regular financial system being replicated, for good or ill, in the crypto space, but with two crucial differences.
- The first difference is the unfathomably greater complexity. And, for Bitcoin and Ethereum, monumentally greater energy consumption.
- That’s what permissionlessness costs
- And the second difference is the almost complete lack of regulation.
- That’s what permissionlessness means
I’m 100% with Diehl that there is an argument to be made that either of those points could cause many people to want to steer well clear. Either could indeed be reasons to want to burn the whole thing to the ground.
But let’s suspend our moral reasoning for just a little while longer. And let’s imagine we fast forward a few years, What we could have on our hands is a vast parallel financial system, where AML, KYC and CTF rules are not applied. A system where no investor protection rules apply. A system where no accredited investor rules are in force. A world, in other words, that looks just like how the existing world would look if we simply woke up one day and the last fifty years of financial regulation was rolled back.
What happens then?
The usual debate usually ends up with one side saying ‘the regulators’ will intervene. And the other side saying that the nature of the technology means they can’t. But a more interesting possibility is to consider what happens if ‘the regulators’ choose not to intervene?
We know that rolling back regulation is devilishly difficult. Who would vote for a sensible reform of AML rules if they feared being labelled a ‘terrorist sympathiser’ by an opponent with a vested interest in the status quo? This is why regulations are almost always like ratchets: more and more get added. Few are ever removed.
However, societies have an ‘antidote’ to this problem, which is to simply let old regulations become irrelevant. Witness the rise of the Money Market Fund in the US in the 1970s. Regulation said that banks can’t pay interest on current accounts. Inflation was sky high. It was too hard to change the regulation. So smart bankers created the money market fund instead. The regulation was simply made irrelevant. And the establishment just kind of accepted it. The law was, in effect, changed by the creation of facts on the ground rather than through the legislative process.
It’s entirely possible the same thing could be playing out in finance, in plain sight. There are few people who would argue that the present state of financial regulation is in any way optimal. But nor is there any reasonable path to reforming it. So we could find ourselves in a few years in a situation where the present system is generally acknowledged to be broken and the only plausible alternative is… the one the crypto community has built.
Diehl’s argument is that this is terrifying. And this should give pause to anybody in the ‘mainstream’ who believes the present system is broken. Where’s your alternative model? What’s your proposal for how we transition to it?
What happens if we reach a point where consumers find the new system so much more convenient that governments don’t dare reimpose the old rules, to avoid incurring the wrath of their voters? And might ‘the regulators’ by that point actually be quietly pleased that they had, in effect, a day zero from which to start again?
If the idea that crypto is the future of finance excites you, you’re probably already out there building. (Sorry, buidling). But if it terrifies you, why are you wasting your time arguing against a web3 strawman argument about imaginary clones of Facebook when there’s a far bigger picture to focus on?
After all, isn’t it most likely that permissionless crypto’s best chance of success is with the problem for which it was actually designed?
If so, I’d humbly suggest that this is where the fine minds presently arguing against the web3 strawman should be spending their time.