Realize the value of Web3

Polarizing technologist, leader, marketer, channel whisperer. Principal with Transformation continuum.

Web3 is the term commonly used to describe the next major evolutionary shift in the Internet—a shift that is currently underway. The first shift on the web was from “read-only” (where webmasters created content and then web servers served it) to “read-write”, with social networks enabling user-generated content that internet platforms owned. Web3 changes ownership in a “read-write-own” format, so users can own the content they create. The foundation of Web3 is a series of applications and services built on top of blockchain networks.

Blockchain itself is a simple concept. It is a shared, immutable (non-modifiable) ledger (transaction record) that facilitates the processing of recorded transactions and the tracking of assets across a network. At its core, blockchain provides “trust” without the need for a centralized authority such as a bank, government or private entity. The detailed, immutable transaction record provides this trust rather than reputation or authority.

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

This view of “pyramid schemes” comes primarily from the fact that blockchain relies on the “network effect”, where the value of the network increases as the number of users on the network increases. This motivates users to recruit new users. As adoption grows, active pull will no longer be necessary, as the Web3 environment itself will pull users and the businesses that want to serve them.

Many well-known services suffer and benefit from the same effect. A social media network with 10 users has no value yet. A social media network with 10 million users has value. That’s why you see so much person-to-person evangelism for social networks. Even traditional banking relies on the network effect. A bank with one customer has minimal lending, borrowing or investment power. A bank with 10,000 customers is a completely different story.

The core value of Web3 is its decentralization, which is made possible by the cheap, easily accessible trust that blockchain technology delivers. Web 2.0 is dominated by a small group of enterprise technology platforms. Google is a good 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 feed you the content it thinks you want to see and therefore click on. If YouTube or TikTok are your choices, you’re creating and viewing user content that the platforms own and monetize under their own dictated terms.

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

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

These nodes are intended and designed to be decentralized. In practice, however, they are highly centralized. This is due to the low cost of entry and the reduced complexity of running blockchain nodes in the cloud. The benefits of public cloud to node operators are similar to those of any enterprise IT department: low cost of entry, reduced complexity and pay as you grow.

These advantages are driving many node operators to the public cloud, which is dominated by a few companies globally. In its current state, the “decentralized” blockchain is often re-centralized to dominant providers such as AWS. For example, according to Ethernodes (via Cointelegraph), one of the most popular blockchain networks, Ethereum, had an estimated 52% of nodes processing their ledger in AWS as of August 2022. There is nothing decentralized about that.

For Web3 to achieve its lofty goals, this consolidation of nodes must be improved. The nodes running the chains must be distributed more widely. This is necessary to prevent a single decision, mistake, policy, or error by a given cloud provider from affecting the blockchain and its users. In its current state, a single decision by AWS could potentially end the robust ecosystem built on Ethereum by shutting down over 50% of the nodes processing the 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 may be the ideal platform for decentralization. Widely distributed edge computing facilities can be used to remove the upfront cost and complexity of running ledger nodes.

For this to grow effectively, we need to see an ecosystem growing 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 offered 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 drove the creation of the protocols that delivered Web 1.0 and Web 2.0—a vision of decentralized, open protocols to allow information sharing across the globe. To help Web3 drive towards this vision, we must first decentralize the processing base of the web’s next generation.

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