(2021-11-12) Baschez The Two Biggest Critiques Of Web3 Analyzed

Nathan Baschez: The two biggest critiques of web3, analyzed. There are two critiques of web3 that I hear more often than any other.

These critiques are so potent because they are at some level true. But that doesn’t mean that web3 is doomed!

there’s a specific type of innovation that always follows this pattern of starting out looking confusing and questionable but ending up indispensable and dominant. The pattern, first described by Clayton Christensen in his massively important book The Innovator’s Solution, goes like this:

once it’s working, the technology’s architecture becomes stable and gets standardized. Once this happens, an alternate ecosystem can spring up to serve the same job-to-be-done, but in a more open and modular way

Web3 is that second type of innovation. It’s not about totally new jobs-to-be-done. It’s mainly about taking ideas we’ve already figured out, and putting them on an open and modular footing

Ready? Let’s go deeper

The Two Big Critiques

The first critique says there are very few human needs that only blockchains can fulfill. Pretty much all of it can be built within web2.

Plus, democratic capitalism is the original decentralization: if one company proves itself to be untrustworthy, that’s an opportunity for another better company to take its place.

The second critique appeals to history, and says that blockchain technology has been around for over a decade, and yet all anybody is using it for is financial speculation and money laundering. If web3 is so great, shouldn’t it have been further along by now with real use cases?

I think these critiques are so potent because, yes, they are kinda true

It’s less about serving totally new value propositions, and more about setting a new foundation for better serving existing value propositions. It’s more re-invention than invention

Here’s where Clay Christensen’s theory of modularity comes in

Once stability sets in, the second phase of innovation happens: a new value chain emerges to compete with the full-stack player, but with an open architecture based on well-defined standards.

This system starts out kind of messy but ends up winning because the open architecture is a much richer environment for market ecosystems to improve performance and extend functionality

In Christensen’s words, from chapter 5 of The Innovator’s Solution: “Modularity has a profound impact on industry structure because it enables independent, nonintegrated organizations to sell, buy, and assemble components and subsystems.

In crypto, this ability for components to work together in an open way is called “composability.”

an open, permissionless architecture

If you’re interested I wrote a whole post on that here, but the TL;DR is power belongs to the company who controls the integration between the layers of the value chain that determine performance for the things that matter most to end users.

This does not mean there will be no companies with power and everything becomes totally modular. Some layers of the value chain will still be controlled by a company that maintains a tight integration.

Saying web3 ideas can be built in web2 is like saying nothing in open source software couldn’t have been built in a closed source way.

It’s taking web3 a long time to gain adoption because there is no single centralized integrator playing the role of IBM.

We’re in the middle of the phase where modular, open alternatives are being built.

In particular the comparison to open-source software felt extremely compelling.

The more people that use a piece of code, the more incentive there is for someone to build tools on top of that code. This creates a positive feedback loop where the most popular projects get more useful, making them more popular, increasing the incentive to make them more useful. This is why open source beat closed source.

And all this happened with surprisingly little at stake: in the case of open source the main incentive is just individual software engineers gaining prestige and high-paying jobs. Nadia Eghbal has written extensively about the incentive problems in the open source community holding back progress. Now imagine the impact open source could have if people weren’t just incentivized by status or high-paying jobs, but also by value creation via tokens.