Realizing the value of Web3

Polarizing technologist, leader, marketer, channel whisperer. Main with Continuous Transformation.

Web3 is the term commonly used to describe the Internet’s next big evolutionary change – a change that is underway. The web’s first shift from “read-only” (where webmasters created content and then web servers served it) to “read-write”, with social networks allowing user-created content belonging to platforms from Internet. Web3 changes ownership in a “read-write-own” format, allowing users to own the content they create. The foundation of Web3 is a series of applications and services built on blockchain networks.

Blockchain itself is a simple concept. It is a shared, immutable (not modifiable) ledger (transaction record) that facilitates the processing of recorded transactions and the tracking of assets over a network. At its core, blockchain provides “trust” without the need for a centralized authority like a bank, government or private entity. The immutable, detailed record of the transaction provides that trust rather than reputation or authority.

Blockchain is often directly associated with cryptocurrencies, which are one of the many applications and services that can – and run – on blockchain networks. This myopic direct association with cryptocurrencies carries baggage in the form of perceived “get-rich-quick” speculation and pyramid schemes — arguments that, valid or not, apply only to a small set of applications and services that blockchain offers.

This “pyramid scheme” view mainly comes from the fact that the blockchain is beholden to the “network effect”, where the value of the network increases as the number of users on the network increases. This encourages users to recruit new users. As adoption grows, active pull will no longer be necessary as the Web3 environment itself will attract users and the companies that want to serve them.

Many well-known services suffer and benefit from this same effect. A social media network with 10 users still has no value. A social media network with 10 million users has value. This is why you see so much personal evangelism on social media. Even the traditional banking system is beholden to the network effect. A bank with one customer has minimal lending, lending, or investment power. A bank with 10,000 customers is an entirely different story.

The core value of Web3 is its decentralization, which is made possible by the cheap and readily available trust that blockchain technology provides. Web 2.0 is dominated by a small group of enterprise technology platforms. Google is a great example. If your primary search engine is Google, your view of the Internet is a Google view. More specifically, your view is a Google-curated view, as its algorithms deliver the content it believes you want to see and therefore click on. If YouTube or TikTok are your flavors of choice, you’re creating and viewing user content that the platforms own and profit from on their own dictated terms.

Web3 decentralization is not about avoiding government and tax controls, and it is not about hiding financial transactions. Decentralization is about moving ownership and control from a few selected entities to the users who engage and create on the blockchain network.

In its current form, this decentralized core tenet of Web3 is at risk. While the theory and structure of blockchain systems allow for a fully decentralized model, the implementation in practice is highly centralized. Much of this is due to the costs and complexity of running the necessary infrastructure for the ledger nodes that process the immutable blockchain ledger.

These nodes are planned and designed to be decentralized. In practice, however, they are heavily centralized. This is due to the low cost of entry and reduced complexity of running blockchain nodes in the cloud. The advantages of public cloud for node operators are similar to the advantages of any corporate IT department: low cost of entry, reduced complexity, and pay-as-you-grow scaling.

These advantages drive many node operators to the public cloud, which is dominated by a few companies globally. In its current state, the “decentralized” blockchain is often recentralized to mainstream providers like AWS. For example, according to Ethernodes (via Cointelegraph), one of the most popular blockchain networks, Ethereum, had around 52% of nodes processing its ledger running on AWS in August 2022. There is nothing decentralized about that.

For Web3 to achieve its lofty goals, this node consolidation must be remedied. The nodes that run the chains must be more widely distributed. This is necessary to prevent a single decision, error, policy or failure of a given cloud provider from affecting the blockchain and its users. In its current state, a single decision by AWS could bring down the robust ecosystem built on Ethereum, shutting down more than 50% of the nodes that process its transactions. This is an extreme example used for illustration only.

This leaves a gap in the market that we should see edge computing fill. As edge computing grows in maturity, it can provide the ideal platform for decentralization. Widely distributed edge computing facilities can be used to remove the upfront costs and complexity of running accounting nodes.

For this to grow effectively, we will need to see an ecosystem grow at the edge. This ecosystem will require specialized offerings for blockchain nodes and the services they require. It will also require more distributed and localized hosting for blockchain computing requirements. This hosting can be provided through a combination of large global colocation providers and smaller regional providers.

The promise of Web3 aligns perfectly with the vision of Tim Berners-Lee, who led the creation of the protocols that delivered Web 1.0 and Web 2.0 — a vision of open, decentralized protocols to enable the sharing of information across the globe. To help Web3 achieve this vision, we must first decentralize the processing base of the next generation of the web.

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