A handful of venture capital firms own most of the web3 marketFor Andreessen Horowitz’s Chris Dixon, there are billions of dollars at stake in the blockchain-based future of the internet known as web3. But even as the venture capitalist charms his investors with dreams of what this next stage could bring, his vision relies on an untested premise — chiefly, the presumption that if you build it, everyone will come. Will they, though?If the first version of the internet was read-only, and the second allowed us to upload our everyday lives to MySpace and Facebook, web3 is where we get to own those outcomes and take them with us. Instead of the tech giants making money from your data, proponents like Dixon believe in decentralizing their power via blockchain networks: Everyone gets a share of the prize, everyone gets a say in how it’s run, and it’s all written down publicly so nobody can quibble.It sounds like progress, and yet even in infancy, this digital utopian plan has faced criticism for not achieving its goal. Major crypto and blockchain-based companies like Coinbase Global Inc. and OpenSea already claim massive market share, poised to become the next Meta Platforms Inc. and Alphabet Inc. Meanwhile, as Twitter Inc. co-founder and Bitcoin advocate Jack Dorsey has pointed out, a handful of venture capital firms own most of the web3 market. Andreessen, also known as a16z, is at the top of the list.💯 https://t.co/YaEO5tLlWl— jack⚡️ (@jack) December 21, 2021Last month, Dixon offered up an explanation for this contradictory state of affairs. Web3 isn’t actually trying to decentralize everything, he said. Instead, it’s main aim is to return control of the “network effects” of web2 to the people: a phrase here meaning the value you gain from diligently using a product over time, like building your friends list on Facebook or your painstakingly curated music library on Spotify. Right now these effects are locked to their platforms and incentivize you to stay with those providers — a key strategy for most companies in the tech sector.“Blockchains provide a powerful new way to build networks where the network effects accrue as public goods, as they did in web1,” said Dixon in a Twitter thread. In web3, that data becomes portable, reducing the stickiness these big firms have mastered.Network effects are the main source of user and developer lock-in. If I try to leave Twitter, I lose the followers I built up over the years. That’s because in web2 the network effects accrued to private companies like Twitter.— cdixon.eth (@cdixon) January 23, 2022Again, this sounds like progress — at least from a user’s perspective. But the big ideas around web3 ignore some key concepts of commerce and even privacy. At the very least, they fail to take into account how different businesses attract new users and manage existing ones. These are proprietary models that go right to the core of modern business economics: Why would they give up the thing that’s keeping their customers from going to rivals? Where are the incentives for companies to embrace public blockchains that allow data to be transferred seamlessly? Dixon’s answer is that large platforms won’t have any other option but to be interoperable in web3. Get with the times, or become obsolete.“This is a classic kind of technological push meeting the reality of humanity. It’s a very idealistic technology,” said Catherine Flick, who teaches computing and social responsibility at De Montfort University in the U.K. city of Leicester. “The idea is good, the theory is good, but in practice, it’s rubbish.”So how would it work in Dixon’s world? Let’s say Twitter becomes a web3 company, and you want to put your follower list on a blockchain network. You do this because you want to move to a new social media platform, but don’t want to lose the audience you worked so hard to build. This is a key conundrum of many online creators these days, who want to get big on the hottest new app but have no control over their network effects — YouTubers largely failing to replicate follower counts on TikTok, for example. Once on a blockchain, you import that data into NewApp. This is also possible because in web3, users can connect their digital identities to their Twitter accounts through a product like MetaMask. Now, your Twitter followers are signed up to follow you on NewApp, you haven’t lost your audience, web3 is every creator’s dream, etc. You could also transplant this scenario to be about moving a company’s client list from one software to another, or retaining customers earned on platforms like Etsy.web1: read web2: read, write web3: read, write, own https://t.co/VtJMsQzTE8— cdixon.eth (@cdixon) February 8, 2022Within this data transfer, though, where are the provisions on requiring users to opt in to new services — rules that have become a prominent part of pretty much all new privacy legislation? In the U.K. and Europe, for example, companies can be fined up to 4% of global annual turnover if they try to onboard new customers without consent. Perhaps that could be sidestepped by allowing users to opt in individually on web3 Twitter, providing passporting permission to the creators. Would this be done on an account-by-account basis? Say, as a user, that I want to give that right to Jay-Z, but not Logan Paul. How many smart contracts would that take to engineer, not to mention my own time, when I follow thousands of accounts? And who takes responsibility for this interoperability? Will all platforms contribute to the costs? These are a lot of unanswered questions and here’s one more: Who decides which blockchains are worth incorporating without a large degree of centralization? Companies like Meta make it hard for you to transfer data out of its network on purpose, and its vision for the metaverse is unlikely to be any different.But perhaps the most glaring issue of all with decentralized-but-not web3 is one that every company has struggled with over the last decade. To illustrate: So you take all your users to NewApp by blockchain, as easy as pie (relatively). But why would they follow suit? Sure, if this is like TikTok, then maybe you can rely on market effects to naturally push everyone over to the new platform given time. But what if NewApp doesn’t have the benefit of being so in demand that everyone’s already thinking of making the shift? Web3 theories like Dixon’s rely on this side of human nature being a thing of the past.“It’s like they just got two halves of an orange and they’re trying to stick it together,” Flick said. “The whole thing is just so blinded to how people actually use the internet, and how they actually interact with other humans on the internet.”The music royalty of Beyonce and Jay-Z offer a cautionary tale. In 2016 Beyonce limited the streaming release of her sixth album “Lemonade” to her husband’s Tidal platform. Though it remained there for three years before being released more widely, even the star power of one of the world’s best-selling recording artists couldn’t elevate Tidal to the same rank as Spotify or Apple Music, despite the former offering just as many millions of tracks.Beyonce’s star power wasn’t sufficient to give Jay-Z’s Tidal the boost it needed to take on rivals. Photographer: Larry Busacca/Getty Images North AmericaIf Beyonce fans could have moved their entire music library over to Tidal in a snap, would they have done it? I guess we’ll never know. But influencing people to join a new network is difficult because of human nature, not technological failings. It’s unlikely to be something that simply being easily transported via blockchain could fix.Yes, web2 network effects are annoying — I barely look at my Facebook account, but I keep it to remind me of people’s birthdays. Web3 only solves this, though, when people are engaged enough to move en masse and to wholly embrace those platforms, which right now is painfully complicated.
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