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Decentralization wars

Decentralization wars

Last week’s crypto-Twitter felt a little bit like wlaking through Tokio in a Godzilla movie. We are all used to our share of screen conflict, but this time it was starred by some of the biggest names in the space.

Jack Dorsey, Elon Musk, Balaji Srinivasan, Chris Dixon, Marc Andreessen, Erik Voorhees, Tyler Winklevoss jumped into it. We could even include Cardi B as part of the brawl because a brief exchange between her and Jack preceded the start of the fight. Coincidence?

Drama aside, the discussion revolves around the most relevant concept in crypto: decentralization. So let's break things down a little bit and use this anecdote as a gateway into this crucial principle.

The rant

It all started when Jack Dorsey criticized the direction Web 3 is taking. According to Dorsey, the whole concept of Web 3 is a gimmick to fool people into believing they have power over the design of the new Internet.

What seemed like an abstract take against VC’s insatiable appetite for Web 3 startups became personal in a reply to Elon Musk with a not-so-veiled reference to Andreessen Horowitz (aka’d A16Z). Andreessen Horowitz launched a $2.2B fund in June, has invested in over 50 companies so far and has hired virtually everyone in the crypto startup space.

A while later, he RTd this self-explanatory cartoon

Image

Then, in case someone still didn't know what he meant.

Finally, he summarised all his views in this last tweet

The concept

What exactly are we fighting about?

Web 3 is still an ambiguous concept that refers to a new iteration of internet technology based on decentralized ownership and transfer of value. The term references Web 2.0, the title given to the technologies that changed the role of end-users on the Internet in the early  2000s. And where there's a 2.0, there must be a 1.0.

Web 1.0 refers to the initial iterations of the Internet, where the protocols allowed for the transmission of information, like through email or basic web navigation - an era characterized by open-source tech that many entrepreneurs used as the building blocks for new products and services.

Web 2.0 encompasses the technologies that allowed the end user to become a content producer, which created new ways in which content was generated, distributed and consumed. It was eventually dominated by proprietary platforms turned into monumental corporations that became great at extracting value from the community: the end user produces the content and interactions, developers builds a whole industry around these platforms, dependant on these platforms, but it's these big corporations who reap most of the benefits.

Web 3.0 evolves over the foundations of web 2.0:

  • It expands what can be generated and transmitted: from information to value. In Web 3, what users can create and share, goes beyond messages and enters the realm of digital property.
  • It decentralizes value and rewards. While 2.0 was the era of the Internet of platforms, where companies like Google or Facebook provided the platform and extracted the value, web 3.0 platforms are decentrally owned and governed, and value is distributed between stakeholders.

At least that's the theory. Jack disagrees.

The meat of the story

Decentralization is a key component of crypto. It is the great conceptual leap that will take internet to the next level, because it dramatically changes the incentive structure.

Even Chris Dixon himself, a GP in Andreessen Horowitz, has written one of the most accurate explanations on how this structure works. Web 2.0 platforms initially behave as neutral protocols that the community can use and build on. This is how Dixon describes the timeline between attraction and extraction of value from users and cooperation and competition against other ecosystem builders.

Jack's point is that when Dixon says "web 2.0", he should say "VC backed companies" instead. He claims that Web 3 will be following the same path as long as the economic incentives of investors are so central to the development of the trend.

Crypto is currently experimenting with new ways of distributing value and cooperating in an agile, profitable, and fair manner. Play-to-earn, DAOs, DeFi, are all different routes into this hypothesis. And even though the debate is complex and full of nuance, and no one should take a position based only on a set of tweets, Jack is correct in pointing out the importance of decentralization as a transformative force. So let's just let that sink in and not lose sight of it.