The Case For Tempering Expectations Of A Future Digital Utopia

Suhani Gandhi

Over the last two decades of Web 2 growth, big tech companies like Google and Apple have focused their efforts and accumulated extreme levels of wealth and dominance over the digital market. Now, as we enter the era of Web3 development, many key voices say that Web3’s decentralized ownership and control loosens the grip of these companies, bringing billions of dollars in value to a much wider group of participants. I believe. This is a common idea among Web3 entrepreneurs. The new era of web development is to unleash the value of everyday users. But as compelling as you can hear the motive, how realistic is Web3’s aspirations?

CNBC’s Kelly Evans said: [Users] You can finally make a lot of money. [Thus]The rise of Web3 may even look like Marxism compared to FANG [Facebook, Amazon, Netflix, Google].. She goes on to say that “the next iteration of the Internet may help undo many of the damage done by the first few generations.” It’s as idyllic as you hear this future, but there’s a reason to adjust your expectations and step carefully.

Technical limits

Taking a step back, blockchain technology supports cryptocurrencies, tokens (both substitutable and non-substitutable, NFT), and all other innovations that contribute to the third iteration of the Web. A blockchain is essentially a digitally distributed, decentralized transaction and other data ledger that is publicly shared among all computer systems within a particular network. Professor James Grimelmann of Cornell University, who writes extensively on modern software regulation, emphasizes the inherent contradiction between the capabilities of Web3 technology and its intended use. [for Web3] It’s about resisting the transfer of personal data to big tech companies. That way, blockchain is not the solution. That’s because it exposes more data, “Grimelman asserts.

“The next iteration of the internet may help undo many of the damage done by the first few generations.” It’s as idyllic as this future sounds, but adjusts expectations and is careful. There is a reason to step in.

Software developer Stephen Diehl cites three other technical issues that can prevent blockchain from fully realizing its Web3 vision. In short, blockchain networks cannot be efficiently scaled to the required level without centralization. Even if you can somehow maintain large decentralization, there are still many logistics problems faced by social networks and other sites built on decentralized blockchains. For example, without centralization, it rarely prevents users from building groups that are even more hateful, abusive, or illegal than the ones that currently exist. Who will fund lawyers for the compliance needs that arise with these new platforms? Who will provide technical support if I forget my password? Storage is also limited given the immutability of blockchain additions only and no deletions.

Diehl summarizes his thoughts in a bitter denial and writes: Continuing the gravy train of selling more coins and circumventing securities regulations is distracting. ”

Even if you can somehow maintain large decentralization, there are still many logistics problems faced by social networks and other sites built on decentralized blockchains.

Power play

An important belief in Web3 is to return ownership and control to Internet users. Theoretically, this is by building new social networks, search engines, and marketplaces on a decentralized blockchain that can be collectively operated and controlled by users rather than today’s centralized big tech enterprises. It can be realized. Deploying tokens (both substitutable and non-substitutable) further enhances the power of users by effectively granting digital ownership / property rights to parts of the Internet.

The tacit assumption is sparse, as this prospect emerges and is desirable. For one thing, big tech companies are unlikely to easily give up the immense power and privileges they have gained over the last two decades of increasing centralization under Web 2. Even enthusiastic professional Web3 tech scholars like NYU’s Mat Dryhurst said, “Even if blockchain-based social networks, transactions, and businesses grow and thrive in the coming years … Web2 companies serve Web3 ideas. Will stay built in. ” An example of this adaptation has already been seen. Facebook has been relocated to Meta, legacy video game developer Ubisoft has launched an in-game NFT, and Twitter is building a decentralized standard for social media (the Bluesky initiative).

Regardless of this possible outcome, assume that the legacy company has somehow been successfully mediated and replaced. What prevents other companies from launching their intended successors (users) and filling the power vacuum themselves?

It’s unlikely that big tech companies will soon give up the immense power and privileges they’ve gained over the last two decades of centralization under Web 2.

Venture capital seems to be preparing for this very powerful play. In 2021 alone, VC will hit a record high of $ 32.8 billion (more than the sum of all years so far) over more than 2,000 transactions (the highest number of transactions ever recorded at double the number of transactions). Pour into cryptocurrency and blockchain related companies (previous year). Silicon Valley VC Andreessen Horowitz (“A16Z”) has already raised more than $ 3 billion and invested in more than 50 crypto startups over the past few years, adding to a new dedicated fund in early 2022. Raised and invested $ 4.5 billion and is the largest supporter of crypto, blockchain, and other Web3 startups.

But the A16Z doesn’t just own a lot of new Web3 technology. They have also led aggressive lobbying / influence campaigns in Washington, DC, shaping future regulations to reward their large Web3 investments. To this end, the A16Z has recently hired closely related Washington insiders such as Jai Ramaswamy (former US Department of Justice Criminal Prosecutor-DOJ) and Bill Hinman (former Corporate Finance Division Director of the US Securities and Exchange Commission). And promoted the agenda of the company. & Exchange Commission-SEC), and Brian Quintenz (former US Commodity Futures Trading Commission-CFTC Commissioner). Although constructed from the perspective of decentralization for the public good, the regulatory and bills that the company has created and disseminated to legislators are primarily from existing tax reports on the startups associated with the cryptocurrencies they have invested in. The focus is on expanding the power and wealth of the A16Z itself by exempting it. Legal requirements for money laundering and consumer protection.

As a sign that the pressure of these and other intensive lobbying activities is already bearing fruit, the December 2021 parliamentary hearing on the regulation of digital assets / financial innovation has tended to be very positive in the industry. The rosy view of the industry was the mainstream, as there was no dissenting view. Each witness invited to testify was the CEO of a cryptocurrency, blockchain, or other Web3-related company. Rohan Gray, a professor of law at Willamette, summarizes this kind of promotion of self-regulation by the crypto industry as “a typical case of asking a fox to design a poultry house.” Gray adds: [firms] Say things in a way that sounds reasonable, but it involves essentially giving up for the public good. A 16Z spokesperson argued: [digital] I hope they will defeat past gatekeepers and middlemen in the future. “

The December 2021 parliamentary hearing on the regulation of digital assets / financial innovation has tended to be very positive in the industry. The rosy view of the industry dominated the hearing because there was no dissenting view.

Outlook

The Web3 movement and its associated technologies, processes, and businesses can certainly be well-meaning. However, due to the combination of technical limitations, the nature of the business, and the enormous profit / power potential available, the promised golden future of egalitarianism, privacy, and user control is greater than Aurum. Buyer responsibility burden.

Suhani Gandhi (’23) is an MBA candidate at Columbia Business School, focusing on research and extracurricular activities on media and social impact. Before she was in business school, she was engaged in management consulting. Outside of her school, she is an avid cruise verbalist, and she also enjoys writing poetry and engaging in civic discourse. Suhani earned a Bachelor of Science degree in Economics and a Bachelor of Science degree in Finance from Kansas State University in 2015 and graduated with honors. She can connect with her on LinkedIn.