Author: @Web3Mario

Introduction: Yesterday, Vitalik indirectly caused the token price of Railgun to rise by over 190% through participation and comments, leading to its drainage. Adding some basic information, Railgun is considered one of Tornado's competitors, providing privacy protection for on-chain behavior through cryptographic algorithms such as zero-knowledge proofs. Compared to Tornado, it has stronger composability and better nesting for DeFi products. At the time when Tornado faced intense scrutiny, supporting an alternative competitor seems to be the original intention of Vitalik's series of actions. This not only makes me marvel at his great influence, but also stirs up some thoughts. Is the resistance to censorship and preference for privacy protection significant for Web3? Or will following this ideology really make Web3 better? I am not entirely in agreement, so I hope to discuss this event and explore where the future development direction of Web3 might be. At its root, I believe it is necessary to start with what exactly Web3 is.

What is Web3

To understand the future of Web3, we must have a clear and precise understanding of the current definition of Web3. Explaining this issue is not a simple matter. In fact, the criticism of Web3 lies in its vague concept, which, while giving it infinite room for defense in the face of questioning, also greatly restricts its further development. This is because a loose and vague definition or vision lacks persuasive power and cannot fully stimulate cohesion and enthusiasm among the community.

After reading some materials, I believe an article published in the Harvard Business Review provides a detailed and objective explanation of the definition and development context of Web3, seemingly giving us the answer. In fact, this concept is not unfamiliar to practitioners:

Web3 uses a range of blockchain-related technologies and offers a read/write/own version of the web, in which users have a financial stake in and more control over the web communities they belong to.

A key feature appears here: in the Web3 world, ownership of digital assets will be returned to users. Taking the classic Web2 company Twitter as an example, because the data generated by users is owned by the platform, the platform can use this data to seek profits through an advertising-driven revenue model. However, strictly speaking, this data is generated by users and should be owned by them, and the resulting benefits should naturally be obtained by users. This is a common story that Web3 practitioners criticize Web2 for.

In this narrative logic, a consensus on the current design principles of Web3 gradually formed, which is recorded on the Ethereum official website and seems to have become the bible for practitioners:

• Web3 is decentralized: instead of large swathes of the internet controlled and owned by centralized entities, ownership gets distributed amongst its builders and users.
• Web3 is permissionless: everyone has equal access to participate in Web3, and no one gets excluded.
• Web3 has native payments: it uses cryptocurrency for spending and sending money online instead of relying on the outdated infrastructure of banks and payment processors.
• Web3 is trustless: it operates using incentives and economic mechanisms instead of relying on trusted third-parties.

However, considering the current market situation of Web3, I believe that the explanation of some of these principles has actually constrained the further development of Web3. Therefore, it is time to re-examine the business we love.

Current Issues with Web3

Although Web3 has not been around for a long time, it has experienced rapid development, with increasing financing and significant growth in market value. Everything seems so good, but there are also significant voices of doubt. In summary, the main criticisms of Web3 at present include the following:

1. This is a dangerous experimental field full of fraud and behind-the-scenes operations: There is already a large amount of negative news to support this view, with a constant stream of rug pulls and hacking incidents, false transactions surrounding tokens, and a large number of phishing websites, posing a significant threat to the security of ordinary users' assets. According to the FTC report, since the beginning of 2021, cryptocurrency scams have caused more than 46,000 people to lose over $1 billion. Behind this heartbreaking number are many families who were originally happy but are now burdened with debt. However, any attempt to regulate Web3 companies will be met with strong resistance from the community, and decentralization and anonymity also increase the difficulty of regulation from a technical perspective.

2. The business model has extreme volatility and is unsustainable, with a very short lifecycle for most companies: It is undeniable that the token-based business model is the key to the success of Web3 and has become a standard for Web3 companies. Unlike traditional business models, the most intuitive source of income for Web3 companies is mostly based on the growth of token value. However, the results show that this profit model is usually not sustainable.

3. The blockchain technology on which Web3 is based is expensive and causes environmental pollution due to energy waste: Critics believe that public blockchain technology is an expensive technology, and users typically need to pay a significant fee (Gas) to use this technology, which seems to go against the evolutionary path of any technology. Moreover, because the security of the Proof of Work consensus is based on brute-forcing a mathematical answer, this is usually a high-energy-consuming scenario. The annual energy waste caused by Bitcoin has exceeded the electricity consumption of the Netherlands.

It must be admitted that the above criticisms are objective phenomena. So, where exactly is the problem that has led to such negative evaluations of Web3?

1. Excessive pursuit of permissionless has turned Web3 into a secret base for children:

Author: @Web3Mario

Introduction: An unlicensed peer-to-peer electronic currency trading system is the beginning of everything. Decentralization and anonymity give Web3 projects based on blockchain technology the characteristic of permissionless, which brings two direct effects: the development of any business does not require reliance on third-party permission, and the participation of any user also does not require reliance on third-party permission. This seems very good because, for the first time in human history, the power of technology has overcome authority, providing protection for the majority and achieving "absolute fairness" through technology. However, the reality may not be as expected, as this characteristic also brings great risks to most people.

The key to why there is such a large deviation from our original intention lies in the fact that our excessive pursuit of permissionless has made "anti-censorship" the political correctness of Web3. Any regulatory agency has become the object of our resistance, and our pursuit of absolute fairness is turning this great cause into a secret base for children, because "anti-censorship" allows us to avoid taking responsibility for our actions.

In fact, the establishment of absolute fairness based on blockchain technology is conditional. It requires that the cognitive level of relevant participants regarding this technology and related business models does not show significant deviation. This condition may have been established in the early "technical forum" stage, but with the development of Web3, more and more ordinary users are entering the industry, breaking this condition. There is now a significant information gap between experts and ordinary users, and due to resistance and fear of any regulation, Web3 lacks sufficient means of protecting ordinary users and effectively restricting malicious behavior. This greatly hinders the industry's development because the interests of the majority cannot receive basic and effective protection.

(2) Overemphasis on incentives and economic models while neglecting the optimization of user experience, leading to a lack of motivation for Web3 companies to build a sustainable and stable profit model, greatly affecting their ability to withstand market risks:

In the narrative of all Web3 projects, it is not difficult to find a strong emphasis on their own economic models. The profit model of most Web3 projects is usually built on complex economic models based on token incentives. The constant appearance of wealth myths once made people view this innovation as a reshaping of the current internet business model. However, with the global asset market cooling down, volatile market value performance, and the constant occurrence of Web3 project scams, this view is facing significant challenges.

The reason for this, I believe, is that this high-efficiency profit model has led many Web3 project parties to overemphasize incentives and economic model design in their business model design. We have become accustomed to creating new customer demand for tokens through clever model design, pushing up the market value of Web3 companies through continuous purchasing demand, while specific operational businesses are ignored or become part of our business story. After all, the development and optimization of products usually require a significant investment of time and money. The most direct impact of this phenomenon is the triggering of a bubble economy, giving rise to a large number of "house of cards" companies. High market value without competitive physical business support is usually unsustainable, making the company's risk tolerance extremely weak.

(3) The trust-building method of Web3 projects excessively relies on the decentralized technological characteristics of blockchain, and in the short term, cannot provide a user experience similar to traditional Web2 projects:

Because Web3 projects are built on the blockchain, the performance of blockchain technology greatly affects the technical carrying capacity of Web3 projects. In fact, for a long time, constrained by the development of blockchain technology, high energy consumption, high cost, and high latency became the characteristics of Web3 projects, greatly affecting the development of Web3. Fortunately, we now see many efficiency-focused solutions such as POS, Layer2, Sharding, which is a welcome phenomenon. I believe that before long, these stereotypes will be greatly reversed.

However, there always seems to be a voice questioning these technological solutions. The root of these criticisms is that they believe that most of these technological solutions to some extent sacrifice the degree of decentralization, leading to a decrease in credibility. Such criticism usually comes from "right-wing tech geeks," who believe that only Bitcoin's POW can bring ultimate trust. Although this seems like a conservative view, it also reflects that the current trust-building method of Web3 projects based on blockchain technology seems to excessively rely on technology, which may affect the imagination of Web3's future. Therefore, finding more trust-building methods and breaking through the limitations of technological development is another problem we need to solve.

The Future Development Direction of Web3

Let's re-examine the Web3 industry with an objective and rational perspective. Solutions to the above problems seem to become clear:

(1) Establish a clear and specific vision for Web3, refine its most valuable characteristics, and promote them

The Web3 industry is still in its early stages, like a child, and its development requires meaningful and correct guidance to thrive. To provide better guidance for the industry's development, we need a more comprehensive and specific discussion of the vision for Web3.

Before this, people generally believed that the vision of Web3 was to create a better and fairer internet. However, such a vague vision does not tell us what a better and fairer internet is, and the specific path to achieve it. As a result, people have gradually equated decentralization and anonymity with fairness and goodness, which is narrow-minded.

I believe that Web3 should not be narrowly understood as attempting to completely replace the existing mainstream internet technology architecture with decentralization and anonymity. Decentralization and anonymity are just the technological characteristics widely adopted by the Web3 industry based on blockchain. However, this should not become a shackle that limits our imagination. It is time to rethink what the true value of Web3 is for us. I believe the following points seem to be more representative:

• Low-cost trust guidance: By observing some successful Web3 business directions, it is not difficult to find a characteristic. Whether it is currency or finance, these businesses were mostly monopolized by countries or super enterprises before Web3, because the development of these businesses usually requires strong trust endorsement. Web3 can quickly enter these areas and achieve good results, fundamentally because we use the power of technology to create a new trust-building paradigm, greatly reducing the cost of trust guidance. The most direct benefit of this characteristic is to broaden the scope of Web3 business innovation, allowing the right to innovate in some originally high-threshold businesses to sink to a wider user base. This is the most fundamental value that Web3 brings to us.

• Verifiable interactive experience: After understanding the underlying value of Web3, we need to consider what the core competitive advantage of Web3 products is compared to other products. This will affect our product design thinking and market promotion strategy. I believe the core competitive advantage of Web3 products is that they can provide users with a verifiable interactive experience. We know that a technological feature of blockchain is that everything maintained in this system is tamper-proof and publicly transparent, allowing Web3 products to prove to users, or give users reason to believe, that everything in Web3 products can be verified. Therefore, in some scenarios that require "self-proving innocence" and have high skepticism, Web3 products will have a competitive advantage.

• Innovative and flexible business models: Whether based on token incentive economic models or DAO-based models, they show the strong expansibility of Web3 in business models. It is precisely based on the premise of verifiability that we have the ability to achieve orderly cooperation among more different interest groups, as A16Z partner Chris Dixon said, Web3.0 provides a new way for all participants to make contributions at different times while ensuring their own interests.

Returning to the initial question, after summarizing, a clear vision for Web3 gradually emerges:

Web3 aims to create a business design paradigm characterized by "low-cost trust guidance, verifiable interactive experience, and innovative and flexible business models" through a series of blockchain-related technologies, complementing existing Web applications.

(2) Explore multi-dimensional trust-building methods, expand the scope of business, and achieve a new round of growth ```

Although reducing the cost of trust is at the core of the storytelling of Web3, the current solution, which relies solely on technology as the only source of trust, actually results in a higher cost of trust compared to traditional centralized mechanisms. Ultimately, this is because the cognitive cost of this trust-building method for ordinary users is too high, and ordinary users are the soil for the next development of Web3. Therefore, we need to find trust-building methods beyond technology, expand the scope of business by protecting the rights of ordinary users, and achieve more long-term breakthroughs.

With this conclusion in mind, we seem to be able to embrace a more open and gentle attitude towards those methods that seem to somewhat contradict the "decentralization" principle. For the longer-term development of Web3, it is appropriate to give up the obsession and idealism of being "technical geeks." Taking regulation as an example, what we need to do is not to avoid it as much as possible, but to discuss how to guide the determination of regulatory boundaries to better serve the development of the Web3 industry. In the process of exploring this issue, the establishment of a vision becomes particularly important. I believe that as long as it is based on the basic characteristics of the Web3 industry mentioned above, any way of innovation and protecting the rights of ordinary users will give Web3 a new impetus for growth.

(3) Stable operational revenue may help us establish a more efficient and sustainable Web3 business model

I believe we need to acknowledge that for a long time to come, enterprise organizations will still be the main driving force behind the development of Web3, because the decision-making and execution efficiency of the current DAO-based governance model is significantly weaker than that of centralized business institutions. Therefore, we will face an unavoidable issue: how to establish a more efficient and sustainable benefit distribution and management model among Web3 enterprises, users, and related stakeholders, which will determine the upper limit of Web3's future development.

Currently, it seems that we have reached a consensus that the majority of the revenue of Web3 enterprises comes from the ownership of a portion of tokens that are locked and unlocked over time. However, this approach may have already shown its limitations. We can find the answer in the financial statements of Web3 enterprises, where they usually have very high non-operating income and very little operating income. This is because we have become accustomed to relinquishing the operating income of the enterprise, stimulating the high growth of tokens through this part of the funds, and thus maintaining a paradigm of higher non-operating income.

This may be the root of the problem. On the one hand, it is easy for enterprises to become focused solely on stimulating token prices, thereby neglecting the optimization and iteration of the product itself, making the enterprise's resistance to market fluctuations very poor. On the other hand, as the token release process progresses, ownership of the project gradually shifts to the community, which can easily trap the enterprise's product development plan in short-termism, as it cannot provide continuous incentives to the enterprise.

In summary, I believe that in the design of business models, Web3 enterprises still need to retain a stable and continuous operational revenue stream for the enterprise, which may bring about a longer-term and sustainable development for Web3.

Conclusion

We are at a crossroads full of change and opportunity, so let's return to calmness and re-examine the career we love. We will find our own glory.

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