Top Web3 Narratives from Q1

The goal of this piece is to recap important web3 narratives from Q1. Historical context is essential, and by studying the past, you can better predict the future. I'll analyze three essential concepts from this past quarter but have listed a few others for you to learn about below.

Here is today's roadmap:

Decentralization Debate
Institutions Keep Experimenting
Governments & Regulation

P.S. If you are new here, look through this web3 starter guide to get up to speed.

Decentralization Debate

Decentralization is a buzzword. No one knows what it means, but it's provocative and gets the people going. There are strong opinions on both sides of the debate. Pro-decentralization folks say it is a way to overcome big tech, big government, or any other institution with an outsized influence. They also state that having open blockchains removes many of the problems we face with web2 today. For example, censorship resistance for social applications has been specifically top of mind lately...

https://twitter.com/elonmusk/status/1507041396242407424

Pro-centralization folks question if decentralization is even feasible or if it can deliver real consumer value. They also argue that web3 today is not decentralized itself, but owned by the same traditional centralized entities that operate web2.

https://twitter.com/jack/status/1473139010197508098

I learned a few things from this debate over the past few months…

Most crypto projects start centralized then become decentralized. This is called progressive decentralization. In the early days of Bitcoin, a small subset of developers were the only ones running it. Ethereum started with a small group of developers, and even today, its Founder Vitalik Buterin has an outsized influence on the project's roadmap - albeit less so over time.
There will be parts of web3 that are centralized and parts that are decentralized. It's helpful that Coinbase exists (centralized) and Uniswap (decentralized). Opensea is one of the most successful platforms (centralized) but is built on chains like Ethereum and Solana that are open-source (decentralized).
As builders, we should be thinking about user behavior. People want products that are intuitive, will make them money, or connect them with like-minded people. Ordinary people won't care what's centralized or decentralized. They will care if it accomplishes a specific job to be done.

"The overall point is that there will be both centralized and decentralized products which help create an open financial system, just like ISPs (centralized) and browsers (decentralized) both play a key role in the internet ecosystem. It's a false dichotomy to pit one against the other because both are a part of the solution." - Brian Armstrong.

People like things that are centralized and decentralized. I like having my bank account managed by a trusted third party. I don't mind having YouTube taking my data and recommending good videos. Spotify has given me so much value by recommending me bangers by being a centralized music platform.

I also like the fact that I can invest in projects and tokens that are more accessible to me now because they are more open from the onset. Open source code in web3 has led to a lot of creativity. You are starting to see academic researchers on social blockchains like Deso review the content and provide recommendations on ways to improve their products' algorithms. That would be nearly impossible at a traditional web2 company.

Over time, I think that centralized entities will become more decentralized. They will adapt to the user, customer, and regulatory demands to open parts of their ecosystem.

You can read more about these alternative takes below:

Moxie Marlinspike's critique
Chris Dixon's response
Brian Armstrong's take

My own takes here and here

Institutions Keep Experimenting

I am biased because I work at LinkedIn, but I believe web2 companies can be the bridge for their user base to explore web3 technologies (e.g., tokens, NFTs, etc.). In terms of scale, web3 is small (~350-400M users) compared to the broader internet today (~4.5B users).

In December, I predicted continued investment and exploration from incumbents in 2022. This has outpaced my previous expectations. I believe a set of successful products with embedded web3 technologies from these large incumbents will drive the next wave of users into this space (e.g. NFTs on Instagram, tokens on a social platform, etc).

Here are just a few of those headlines and associated articles below:

https://twitter.com/IBTimes/status/1508714776410603531

You get the point. I've been speaking to quite a few of these folks; no one knows what they are doing. Although, many are curious. They are putting a small team of interested people on these "special projects." Many of these experiments will fail. That's okay. The fact that these large companies are experimenting is a win. It will spur more creativity, drive more professionalism to the industry, and provide the millions (if not billions) of users access to test out these new technologies.

Governments & Regulation

"Technology will always move faster than lawmakers can regulate. The answer to the dilemma is to listen to the experts at the outset, and be vigilant in updating laws to match current technological realities." - Margaret O'Mara.

Studying the history of the internet to find signals of how web3 may mature has been interesting. Today's internet was primarily built in the 1990s when the government opened up the internet to commercial activity and designed rules to govern its infrastructure. Two laws still impacting us today are Section 230 and the Communications Decency Act. Both were written in 1996, before Amazon, Google, Facebook, and others were created. Both of these laws are being challenged due to concerns about how much power these big tech companies have accumulated. Despite recent pushback, the fact that these existed first led to tremendous innovation that has benefited the majority of the world.

In the late 1990s, Silicon Valley was an outsider lobbying lawmakers to protect their electronic frontier. In the early 2020s, the same narrative is being used for web3. What will be the industry's version of Section 230 and the Communications Decency Act? Will it be possible to craft intelligent legislation that will not have a few negative second-order consequences? Probably not. Will it set the groundwork for more companies to be created, more investors to deploy capital in the space, and more talent to enter into web3? Probably.

Here are a few noteworthy events that happened this past quarter:

It’s slightly adjacent to government regulation, but I was excited about how the US last week arrested and charged two twenty-two year olds for launching a NFT project, making promises, collecting $1.1m before disappearing. As we have spoken about previously, blockchains are public databases. All of the transactions are recorded. Trying to commit fraud is a bad idea in this ecosystem. I hope that more of the people trying to make a quick buck and take advantage of investors will take note of this moving forward.

Not all of these moves from regulatory bodies be the best for the industry. However, it is positive that this topic is becoming a higher priority for governments worldwide.

Bonus

If you don’t like Mark Zuckerburg, I’d encourage you to watch a bit of this video. I have gained a lot of empathy for him in this podcast from Tim Ferriss and this one with Lex Fridman. Friends that have worked at Meta have shared positive things about him as well. I think he’s made some bad decisions, but if I was in his shoes, I would probably mess some things up too.