Web3 Is Not Cool Anymore

Apparently we’re on Web5 now. That was the announcement last Friday, from a subsidiary of Block called TBD. The tagline reads a lot like Web3 – “an extra decentralized web that puts you in control of your data and identity” – but a peek behind the marketing reveals some humble goals.

Late last year, Jack Dorsey publicly criticized the idea of “Web3” with a tweet: "You don't own 'web3.' The VCs and their LPs do. It will never escape their incentives. It’s ultimately a centralized entity with a different label." The VCs, presumably, were the partners at Andreessen-Horowitz managing a $4.5 billion investment fund focused on Web3 and other “crypto, not bitcoin” startups.

Web3 relies on a multilevel marketing scheme, where early adopters are financially rewarded for recruiting new participants to a network. The Ponzi structure is necessary so that venture capitalists can promise their LPs (limited partners) outsized returns while investing in a decentralized technology. This is not necessarily a bad thing; Tupperware, Mary Kay, and Herbalife are all lawful and legitimate examples of the same business model. But it solves none of the problems of the current web; namely, the fact that users are powerless against monopolistic tech platforms. Web3 platforms are still controlled by the entities at the top of the pyramid.

Web5 combines the content-ownership goals of Web3 with the decentralized content creation of the traditional web, or Web2 (3+2=5). TBD’s Web5 platform introduces features like having a decentralized identity and storage without messing with tokens. The identity network, ION, is a layer two network anchored to the Bitcoin blockchain. Identifiers are self-owned, but entities can issue verifiable credentials to be used for authentication with third parties. Data associated with decentralized identifiers are then stored on Decentralized Web Nodes, which function as a personal server that communicates with Web5 apps. Users control their own data, so information is portable.

But people are lazy. Part of why Web2 monopolies amassed so much power is because they made it so easy to post content on the internet, with no need to self-host a server. The majority of Bitcoin users can’t even be bothered to run their own nodes. If the financial incentives aren’t there, will participants be motivated to invite their friends? Will washed-up movie actors shill Web5 in Super Bowl commercials?

A few years ago, decentralization seemed like an overwrought solution to an unwelcome goal. Centralized services were popular because they had the ability to iterate quickly and amass data that could be used to optimize engagement. In 2018, Chris Dixon of Andreessen Horowitz observed that digital platforms can achieve rapid growth through network effects, but once the market nears saturation, the platform must rely on rent-seeking to maintain profit margins. This may lead to pushier advertising, or the exploitation of user data to increase engagement, or extracting transaction fees from sellers. Inevitably, the platform becomes the parasite. Can Web5 avoid the same fate? Don’t trust, verify.