In early 2021, French-Lebanese cryptographer Nadim Kobeissi tweeted a vague idea that just came to mind. “I’m designing a decentralized social media solution where each user hosts its own microservice,” Cobesi wrote. “They connect to each other in a mesh, allowing you to follow and share posts. It’s lightweight, easy to use, and secure. Interested in funding its development?”
Cobessi raised $100,000 in less than a day with a tweet summarizing the details. A week later, he became CEO of a new Delaware corporation called Capsule Social, with a paper valuation of his $10 million. He has raised an additional $2.5 million from a pre-seed round that closed in April 2021. The startup is now raising another round at a $30 million valuation.
“[T]His level of interest was so high that I essentially felt like I needed to pause and re-evaluate my approach to perfection. “I had no plans at all. I came up with an idea for my own project.”
What made VCs so excited? Kobeissi’s pitch included the magic word “decentralization” to animate the less speculative and more idealistic side of the Web3 movement. I was.
Distributed systems that don’t rely on a core entity to function is an age-old concept that has been greatly undermined in the Web 2.0 era. Many technologists have been chasing a resurgence of decentralization for years.
But when Capsule Social finally launched its Blogchain writing platform in June, the more glamorous aspects of Web3 — cryptocurrencies and NFTs — crumbled, leaving idealists like Kobeissi to ditch projects and decentralization. brand from the collapse of the larger Web3.
generation of decentralization
The Internet itself is a decentralized network of communication networks, with no central authority to censor bits and bytes or stop parts of the network from communicating with others. The first technologies employed in that infrastructure (email, his web in the early days) employed essentially the same decentralized nature.
The basics of online life were designed this way, but then monolithic platforms like Google and Facebook took over, placing themselves at the center of people’s interactions and activities. These Web 2.0 giants have been user-friendly and secure, but censor some of their search results and uploaded content while using their all-seeing position to profile users and target ads. It soon became clear.
Mistrust of Silicon Valley inspired the first big wave of decentralization in the 2010s. In this wave, idealistic geeks and activists tried, unsuccessfully, to challenge Big Tech with services like Diaspora and Mastodon, alternatives to Facebook and Twitter. These projects were more privacy and censorship-resistant than their rivals, but the user experience was much more complex and, importantly, few users were already happily interacting with the Silicon Valley platform. rice field.
After that, Bitcoin spread explosively, and the concept of blockchain was introduced to the world. A blockchain is a distributed ledger that is stored across multiple computers, and its distributed architecture makes its contents virtually tamper-proof. Decentralization is back with vengeance, and the term has been tossed around by supporters of “Web3,” a vague term that encapsulates interconnected crypto, blockchain, and NFT fields. rice field.
Web3 Cloud hopes to take on Wall Street with decentralized finance (DeFi), where transactions are made via self-executing programs called “smart contracts” running on blockchains such as Ethereum. New Web3 projects and communities will emerge in the form of decentralized autonomous organizations (DAOs) that also use blockchain as a kind of operating system.
Noam Garay—Getty Images
Chris Dixon, partner at Andreessen Horowitz, declared in 2018 that “decentralized networks can win the third era of the Internet.” I will post about “decentralization of truth”.
This is how Kobeissi raised $100,000 in 24 hours. “Last year, such a project was very easily funded. When I first proposed this project, it was primarily intended as a passion or side project,” journalist Glenn Greenwald 2013 Program used in a secret conversation with NSA leaker Edward Snowden earlier in the year.
But after the hype came the crash.
crypto winter
Since November 2021, cryptocurrency market capitalization has plummeted from $3 trillion to over $1 trillion, with Bitcoin and Ethereum each down 66%. Sales of NFTs (digital files, typically tradable tokens denoting ownership of art) have also collapsed, with an estimated average selling price of NFTs dropping 88% between April and July. .
The “crypto winter” is partly the result of the broader recession, and cryptocurrencies once seen as a hedge against traditional equities have turned out to be following in the footsteps of the Nasdaq in particular. However, the recession accelerated in May. UST collapse. Perhaps more damaging is the myriad instances of NFT and cryptocurrency theft and fraud damaging the reputation of the entire sector.
In Kobeissi’s view, decentralization is caught in a crash. “I think NFTs have helped tarnish the brand of decentralization,” said Kobeissi.
Chet Strange/Bloomberg via Getty Images
Global Web3 and blockchain deal activity fell from about $10 billion in the first quarter of this year to $7.7 billion in the second quarter, according to deal tracker Pitchbook, while Pitchbook’s fintech analysts One Robert Le said it’s “still a healthy dose.” “It mirrors what’s happening in the wider VC market.”
“The last six months have definitely been a time of layoffs in many areas,” said venture capital firm Accel’s Web3 development platform Tenderly and Axie Infinity The manufacturer is Sky Mavis. “We’re cleaning up now.”
On the one hand, the crash brings with it a tougher market for launching services such as. blog chain. Kobeissi said the platform has not set detailed metrics yet, so it is impossible to measure readership, but there are few Blogchain posts. Few comments and shares.
“Had we launched sooner, it would have had a greater impact just because of the hype surrounding Web3 and so on,” Kobeissi said. “Now we basically have to do a grassroots style campaign. Just like any traditional smart business, we need to justify the value of the product on its merits.”
But Kobeissi also sees this crash as a demonstration of the correctness of his controversial decision to avoid Web3’s more noisy elements.
Blogchain is essentially Web3. Due to its decentralized nature, it is difficult to censor posts completely, and uses blockchain-based “smart contracts” to make content moderation decisions completely transparent. This is the answer to Big Tech’s opaque moderation practices.
But Blogchain is not based on cryptocurrencies or NFTs. It’s a feature that has disappointed many VCs looking to cash in on Cobessi in early 2021, Cobessi says. The VC also disliked his decision to use the carbon-neutral NEAR blockchain instead of the emissions-heavy Ethereum blockchain, arguing that it has “higher brand recognition.”
“When we developed the platform, we had dozens of calls with potential investors, partners and advisors, most of which encouraged us to focus more on NFTs,” he said. remembered. “A lot of people are saying we should promise people tokens and NFTs instead of focusing on content. I was treated like a person.”
“Monkey NFTs make no sense, but if we use the same smart contract technology to provide accountability in content moderation, it actually makes sense,” said Kobeissi.
clear decentralization name
Jürgen Geuter, a German computer scientist turned eminent technology critic who writes under the name ‘tante’, agrees that recent events have ‘greatly tarnished the brand’ of decentralization. But in his view, trying to create a decentralized system was already a lost cause. Because users have repeatedly shown that they value convenience over the ability to avoid Big He tech.
Geuter cites email as an example. Email is decentralized by nature, but the widespread adoption of Google’s Gmail service, which is feature-rich and highly secure, has effectively centralized email for many people. Bitcoin is currently controlled by a small number of mining groups and the majority of NFT transactions are done via email. One platform, OpenSea.
Moreover, according to Geuter, the limited success of projects such as Diaspora and Mastodon has already shown that decentralized services have major problems in overcoming the network effects and ease of use of Big Tech. . “No one likes annoying technology, except perhaps techies,” he said.
According to Pitchbook’s Le, all projects end up with some degree of centralization, but that’s not a problem for most users. “As a consumer, I just want to use products that make my life easier,” he says.
Geuter mocks the way the Web3 scene worships decentralization, but people see decentralization not as a vague means of democratization, but as a tool for building things that truly benefit from decentralization. I believe that concept is still “very important” as long as of a transparent content management system-like architecture.
“In some ways, moving decentralization out of this empty pie virtual space, erasing its name and making it a topic of research again is good for decentralization,” said Geuter. .
Accel VC Brasoveanu also believes the concept is still “an attractive idea and goal to pursue”, with the emergence of recent projects like LooksRare, an NFT marketplace that offers a decentralized alternative to OpenSea. mentioned about In June, OpenSea was still the top market with two-thirds of NFTs traded, while LooksRare was second with 20%.
Similarly, Le cited a decentralized wireless network for Internet of Things-connected devices called Helium as an example of an innovative token model. Helium participants earn cryptocurrency by running the hotspots that make up the network, and businesses can purchase that cryptocurrency to use their infrastructure. Until very recently, Helium pitched Salesforce and Lime as examples of such customers, but after backlash from both companies, Helium admitted that it had only run a pilot program with them.
Jordan Vonderhaar — Bloomberg via Getty Images
Helium was valued at $1.2 billion in March when the likes of Andreessen Horowitz and Tiger Global Management participated in a $200 million Series D round.
“I think users will hold tokens because they believe in the project because of how project developers think about tokennomics,” Le said. “It’s not speculation, it’s ‘I understand this project.'”
“We are one of the Web3 platforms most likely to survive this recession because we are using these technologies in a sensible way. We will remain anonymous — blogchain revenue will go to our premium writers. Earned by taking 10% of the subscription fee you charge.
“At first the hype pushed us, whether it was deserved or not, but now that we’re building on such a solid and well-justified foundation, we’re looking forward to the long term. I think we have a chance.”
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