What are the quality attributes and need-solution pairs of Web3? At minimum, the key quality attribute is decentralization. The key matching need is fairness. There are good reasons why this is so.
I’d love to be able cite someone that there is a natural tendency for humans to centralize power. I’d love for that statement to be axiomatic. I can cite quite a few papers that appear to just take it as a given (Aristotle (301 BCE, Machiavelli (1513), Bloomfield and Coombs (1992)). But, I can’t find a passage for the axiom anywhere. For the purposes of this post, I’m importing the assumption as a truth: there is a tendency for people to centralize to power.
Decentralization is a counter-force to the centralizing of power.
There’s an argument to be made that several forms of network effects are inherently natural monopolies. Railroads, electrical utilities, and social networks are all alike in that the very nature of the network – the more people who join in on a network – the more useful it is. A railroad is more useful as the number of connections increase. It is kind of of fun to think of a solo social network as a contradiction. Network effects and natural monopolies are kind of a business meme in several ways. Several kinds of language are used to describe what centralizers are really after. By centralizing the power over the distribution of something, an organization is able to use (sometimes called leverage) its position to extract greater rents and deliver outstanding shareholder value. Some might even make an appeal to the public good, as was the case with the nationalization of the traction system in Toronto in the late 1910’s (Solomon, 2007), because if we don’t nationalize transportation, then the trade-unionist communists will win. It all reduces to the same idea: power over the distribution of something (attention, ideas, authority, goods, ads, people) is power. When combined with a natural monopoly it is durable power.
So, by virtue of human nature and physics, opportunities for the centralization of power occur. And, without intervention, the power can compound and damage societies. The fight against this tendency in the West in particular has been long and exceptional (Robinson and Acemoglu (2012)). Lodged in the Western European culture are bitter memories of serfdom and wars that should have never been fought instigated by leaders who had no moral authority to lead men to their deaths. It didn’t seem fair to us, or to English people in the 1380’s, because it wasn’t fair. The struggle for fairness and the struggle against monopolies, political, natural and otherwise, are linked.
The need for fairness isn’t a common one, and the operationalization of the concept may vary by individual. I think the thickest mud is around the reason for Web3 is to be found around this particular pit. So let’s dive in.
There are multiple applications of Web3: DeFi, DeSci, NFT’s of art, virtual currency and shitcoins, gaming, coordination, data harmonization, anything that could be done in Web2, and inventions that have yet to be imagined. I wonder if this is what Amsterdam felt like in 1602.
The reaction against Web3 comes in many forms. Often it’s: if Web3 is really anything that Web2 can do – only decentralized, then what is the point of Web3 then? Take, for instance, the latest movement around NFT’s and Art. Why is it that the same people who were against the RIAA and the securitization of art through the copyright establishment are all of a sudden in favour of copyrights and securitization? Isn’t this inconsistent?
There is a perspective that seems consistent.
Prior to 2005 a musician needed to appeal to a small set of people who controlled the distribution of art. And that small set of people were corruptible. That unfairness aside, the musician needed to have a certain look. They needed to convey a certain image. They needed to be controllable. They needed to appeal to a specific market segment. The actual talent of an artist, on merit, didn’t really matter. Not really. You didn’t need to be the absolute best artist. You really needed to be competent in artistry, and overindex in the quality attributes that market segments wanted at that point in time. You were either selected, or you weren’t. If you weren’t, you really didn’t get the opportunity to practice your craft as much as those who were.
Power distributions are brutal in the arts. On the surface, this process of musician selection acquired the veneer of participation in 2002 with American Idol, and only truly began to resemble a truer meritocracy with the invention of Youtube in 2005. Same power law. Different distributors. Then, the distribution networks became increasingly centralized, and an argument could be made that Spotify, Facebook, Alphabet, Apple, Amazon and Netflix are once again centralized platforms with a small group of people picking winners and losers. Many artists complain about the injustice of the Instagram algorithm or the perception that you have to be connected with the taste-making curators at Spotify.
That’s just music. The pattern of artist-agent-masses generalizes in painting, sculpture, clothing, digital, and furniture.
I don’t believe that a claim has ever been made that NFT’s solve the distribution of outcomes (a power distribution in which fewer than 1% of all those who seek to become successful artists earn enough to devote 100% of their effort to the improvement of their art). I have heard the claim that NFT’s make the distribution of opportunity fairer, because they do not need to rely on centralized authorities to receive monetary recognition for their work. NFT’s, they argue, lower the barrier for everybody by reducing the power of agents (both technological and human).
One could argue that Web3, to date, has been very poor at ensuring decentralization and generating fair outcomes. Bitcoin’s wealth has centralized. There’s a zoo of very bad actors doing very bad things in a very deregulated environment. Questionable DAO’s. Shitcoins. Self-trading and market manipulation. How is any of that fair?
In so many places, in so many experiments, in so many projects, there has been a failure to deliver on fairness. And, in quite a few instances, that’s why those projects have failed.
While there has not been an equality of outcome (and nor is that really an attainable outcome in so many competitive arenas), there has been an increasing amount of equality of opportunity.
Genuine equality of opportunity is a vital component of fairness. I can’t make the claim that it’s perfectly fair, because it is not. In order to develop a Web3 protocol itself you need to acquire specialized and generalized skills. Even a generalized skill like Go or Rust isn’t trivial for most people to pick up. Programming isn’t easy. One isn’t born knowing how to read, write, understand and encode logic, and think in terms of systems. Not everybody can afford the software and the hardware needed to learn these skills. Not everybody has the time or cognitive surplus to acquire the base skill to participate in the creation of the technology itself. Anybody with the skills can participate. It’s wide open. Picking up the specialized skills is even harder. There are barriers to entry.
Private key management is a significant barrier to entry for many. There are efforts to make participation easier for more people. I like to make the comparison to the Web. In 1992, you had to be very dedicated and specialized to access the world wide web. By 1998, you had to have some skill. By 2008, anybody with a couple hundred dollars for an iphone and some basic literacy could add their voice to Twitter or Facebook. Instagram alleviated the literacy requirement a few years later. If you can point your phone at something, you can post an image to instagram. The same will probably happen with Web3. The efforts of thousands of people trying, failing, and learning, will lower the barriers and make it more fair.
There is the other side of fairness as well. That of the agents who work so hard to (make taste, curate, gatekeep) would argue that they have worked long and hard for the privilege of selecting winners and losers, or, a more generous identity representation would be to disambiguate a market by matching supply and demand. It may be unfair to label all of these taste-makers and gate-keepers as rent seekers. Agents coordinate perspectives and in so doing, cause many markets to function more smoothly. Is it fair to them that they should be disrupted by new technology?
This is the nature of creative destruction. It doesn’t feel great when you’re the one being disrupted. Agents that discover new niches may persist and thrive. Agents that do not will vanish. Agents that are effective at lobbying regulatory bodies in order to evade creative destruction will continue to enjoy their rents. The retort “Life Isn’t Fair” can be effectively weaponized by the creative destructors and the creative destructees alike. It doesn’t advance the conversation. It seems designed to stall it.
If people felt as though their need to be treated fairly by a market were being fulfilled, then there would be a demand for substitutes that are more fair?
This, inherently, is the greatest problem with DeFi. If it feels a bit like Amsterdam 1637, that’s because it is. None of the people who are pouring their capital into DeFi were alive in 1637, and many don’t have any awareness of what happened in Amsterdam in 1637, so how can they be aware of it? Moreover, there is a certain confidence that comes with youth that is predictable. On this planet, a sucker is born every 4.5 seconds. The interesting aspect is that some have argued that they tried playing in the regulated environment only be treated unfairly by RobinHood, so, if they’re going to take it as a given that regulations unfairly protect elites, then they’d just much rather compete on the same crooked playing field with everybody else. How is it fair that the SEC does nothing while billionaires manipulate stocks?The argument that people will get hurt by DeFi, in those minds, is rendered moot by the reality that people are getting hurt by regulated markets.
I’m not sure that I agree that the ultimate solution is to simply laissez-faire.
I struggle with how regulation that is often intended to protect people from harm often ends up benefiting a group of people who actively use those regulations to cause harm. On this point, it doesn’t seem as though, at present, our systems are designed to deliver persistently fair equality of opportunity in several respects.
The best solutions lie somewhere the greyest of the grey areas between self-regulation and collective-regulation.
What Right Do People Have To Manifest Fairness?
I believe people have the right to try. In the West, anybody is allowed to create something new that adds value, even if that value disturbs the privileges and monopolies created or captured by others. Everybody has the right to try. This pattern seems to repeat. A new elite is born. They erect monopolies to extract their privileges. They use their political power to exempt themselves from creative destruction. They go too far. A democratic reaction is manifested. Creative destruction follows. The invention of the peaceful transfer of power is a fantastically effective tool. The latency seems quite high.
It’s a vital element of material and social progress. For everybody to improve, collectively, things have the change. The outcomes aren’t guaranteed. People have the right to try.
Web3 is much more than DeFi and NFT’s, of fraudsters, carnival barkers, hawkers and confidence men behaving confidently. It’s just so hard to see. There were several interesting things to buy in Amsterdam in 1637 too. It just isn’t the way we remember those times – if we remember them at all.
Today, there are applications in DeSci and trustless networks that could unlock new ways of creating value by connecting disparate sources of knowledge. They’re as difficult to unpack as the concept of fairness. There are very good projects in DeFi to create fairness and fight graft by programming transparency right into the very protocols themselves. There is a lot of signal in the notion of programmatic, transparent rules getting applied programmatically and transparently.
The fact that Web3 is different or novel isn’t enough to explain away the persistent popularity of Web3 technologies. Web3, as a substitute set of decentralized technologies, has to satisfy a need better than the incumbent. I’ve argued that the key need is fairness.
Fairness in the sense of an equality of opportunity, a sense of a decentralization of power, in a background where trust in institutions has declined, and that people can be recognized.
Aristotle (301 BCE) Politics
Bloomfield, B. P., & Coombs, R. (1992). Information technology, control and power: The centralization and decentralization debate revisited. Journal of management studies, 29(4), 459-459.
Machiavelli, N. (1513). The prince
Robinson, J. A., & Acemoglu, D. (2012). Why nations fail: The origins of power, prosperity and poverty (pp. 45-47). London: Profile.
Solomon, L. (2007). Toronto sprawls: A history. University of Toronto Press.