Keep the web free,
say no to Web3

Web3 has been called many things: an idea, a movement, a new iteration of the internet.

It’s the ‘future’ of the internet, proposed by cryptocurrency enthusiasts, based on public blockchain.

This is a no-hype, down-to-earth breakdown of everything we have learned about Web3.

What is Web3?

Originally coined by Gavin Wood, co-founder of Ethereum, Web3 refers to a decentralized online ecosystem on the blockchain. It has become a buzzword, used within the crypto/NFT/DeFi (decentralized finance) community.

What is a blockchain?

A blockchain is a database that is distributed across the nodes of a computer network. They are known as distributed ledger technology (DLT). The blockchain is designed to record and distribute data, but editing or changing it is impossible. For use as a banking ledger, it makes sense because obviously you don't want people editing their bank account balance. An infrastructure for the internet? Not so much.

What is a NFT?

NFT stands for non-fungible-token. You can think of them as one-of-a-kind digital trading cards. NFTs can be anything digital, such as drawings or music.

Originally, NFTs were intended to be a way for artists to protect their work by adding a digital signature that can never be forged or removed.

The files themselves are too large to be stored onto the blockchain itself. As a workaround, the URL of an NFT is what gets recorded instead.

This page was edited and expanded on 12/12/21.

It's being driven by predatory marketing tactics

The purpose of marketing is to create demand in a market, to make people desire commodities and increase purchases of said commodities. A marketer is tasked to sell the product and not necessarily to educate potential buyers on the details of how the product operates.

In cryptocurrency markets, every coinholder has a financial incentive to be their own marketer in order to increase the value of their own assets and can resort to any means necessary.

Because of this, much of the Web3 hype being drummed up on Twitter - specifically focused on beginners, those new to Web3 and crypto - is predatory and follows along the lines of a ponzi scheme.

A 'ponzi scheme' is a type of investment fraud that pays existing investors with funds collected from new investors. In other words, it generates the most money for the people who joined in the beginning. This type of scam bears a strong similarity to multi-level-marketing and pyramid schemes.

These types of schemes are run by a central operator who uses the money from new people to pay off the original people with their promised returns. This makes the operation seem profitable and legitimate, even though no profit is being made. The person running the scheme usually either pockets the money or uses it to expand the operation.

Marie Springer, the author of The Politics of Ponzi Schemes, responded to the crypto hype in an interview, "I can't tell you how many Ponzi schemes have done exactly what you're describing, using exactly the mechanisms you're referring to. The only difference is usually these schemes are done with fiat currency."

It's impossible to fully understand without complex technological and financial knowledge

In economics, this type of thing is called information asymmetry. This is when one party has more or better information than the other in a market transaction.

Those who stand to 'lose' don't have the time, energy, resources or knowledge to defend themselves. Without a complete understanding of what one is putting their money toward, it's impossible to make a correct judgement about whether or not that is the correct thing to do.

If website participation is somehow tokenized, it will be used and abused- and just like blackhat SEO, the losers will be those that don't know what they are doing.

The blockchain encourages information asymmetry by being dense, complicated and full of fly-by-night scammers, but it discourages it by making all of this difficult-to-understand information public.

It is actively harming the environment

One of the most glaring criticisms of anything crypto-related is its negative impact on our already declining ecosystem. The blockchain requires a significant amount of computing power, and thus consumes a lot of energy. In fact, some miners are purchasing entire power plants to dedicate to crypto mining.

Crypto mining currently consumes more energy than many small countries, according to the Cambridge Bitcoin Electricity Consumption Index.

What many fail to mention is the potential of climate-induced disruptions to the internet. With increasing frequency, intensity and duration of natural disasters linked to climate change, this seems like a real possibility that no one is talking about.

It caters to early adopters and whales

When a project is announced, the creators of the project want to fund it, so they pitch the idea to the public. The public has no idea whether the project will be successful for not. Those who think it will be successful invest their money in the project. If the project fails, the money is not returned, which makes investing a high risk - it could all be lost.

Because of this, those who choose to invest the most are usually the ones who have the most to spend. Losing the equivalent of $500,000 doesn't mean much if you're worth three times as much. Because the companies that receive the most financial support are the most likely to succeed, it essentially means that the early adopters and whales who fund a project are going to have the loudest voices.

While some herald crypto as a way to get rich, Stephen Diehl described crypto in a recent interview as "a giant regressive tax that transfers money from the poor and illiterate, to the early adopters and the investors and the technologists." He goes on to say, "The only real kind of end game is to recreate the system that already exists but with new players controlling it."

It profits off of artificial scarcity

This isn't exclusive to NFTs either. Here's a good article that talks about the different types of artificial scarcity within the Web3 umbrella.

Artificial scarcity is the scarcity (or rareness) of items even though either the technology and production, or sharing capacity exists to create a theoretically limitless abundance.

An eloquent explanation was quoted in a newsletter, "Digital scarcity’ is an anti human evolution ideology that imposes board game-like rules which serve no purpose than to preserve the game itself - to hide the internal contradictions of capitalism that become painfully obvious in an area of culture that has overcome scarcity."

A common type of crypto scheme is called pump and dump. They have two parts - the first part is to build up a lot of hype for a particular project, so that the prices of (and the demand for) that project rises. Then, when the price of the token is high, the coinholders sell them off to people who believe them to be truly valuable,

Investors are banking on Web3 and they really don't want to be wrong

Many large investors have been making headlines recently. Large investors also happen to be those who have enough money to facilitate a widespread adoption of the protocol with their use of money, influence and power.

This should make us question if it is really a good idea, or if it is just being driven by people who have already put millions of dollars into ensuring its success.

A note on Ethereum

Gavin Wood, co-founder of the Web3 Foundation, is said to have coined the term Web3 as we know it today. He is also the co-founder of Ethereum, the second most popular cryptocurrency after Bitcoin.

Ethereum is a blockchain platform with its own cryptocurrency. It is also a worldwide software platform with no host, on which developers are building blockchain-based applications. These applications can run without being controlled by a company.

Smart contracts are programs stored on a blockchain. They are coded with the terms of agreement between a buyer and a seller. These contracts are not fool proof - they have a history of being exploited.

Ethereum is currently worth a lot compared to 'money'. At the time of writing this, 1 ETH is worth $4041.36 USD. This makes sense in regards to the recent hype surrounding DeFi (Decentralized Finance) - everyone wants in on it.

The Ethereum blockchain allows you to create your own cryptocurrency which can be purchased with Ether. This means anyone who has an existing balance of Ether can have their tokens converted to the new currency.

As this is happening, NFT Marketplaces have opened such as Many brands and influencers are using this platform to run a common scheme.