NEWSLETTER
When the Web3 narrative became very popular in 2021, I was still in college and had recently been introduced to blockchain technology, smart contracts, and decentralized applications. Like many at the time, I imagined that ethereum or another high-performance smart contract blockchain would grow to become the base layer of the Internet. The other outcome in my mind was a “multichain” future where the Internet ran on multiple L1 smart contracts. And bitcoin, being a boring chain lacking Turing integrity, had no role in Web3.
Some facts could have easily made things clearer if only I had been aware of them at the time. Fortunately, I was more cautious with my money than my thoughts, so I never lost anything by investing in Web3 ERC-20 tokens.
Today I am actively betting against the “read, write, own” Internet promoted by Web3 venture capitalists, while betting on what I call a “read, write, work” Internet that will be curated and enjoyed by users. Both bets are expressed through the possession of bitcoins. Rather than being a desperate attempt to “own” data, bitcoin is well positioned to be the currency that powers the new web as a medium of exchange. The fundamental concept behind this thesis is a subset of “fix money, fix the world”; here I just say “fix the money, fix the network.”
Web3 is a topic worth discussing because Bitcoiners need to start making up for lost ground. I have written before that bitcoin should possess the name “crypto” based on principle and etymology; This essay is about how we should seriously reimagine Web3 with bitcoin.
Where the Web went wrong
The fundamental problem with the Internet today is not privacy, nor data, nor centralization, nor censorship, nor anything else that people are so accustomed to repeating. The fundamental issue is that there is no constant money on the Internet.
When I use a social media platform, I pay for that experience using my data. This data is valuable because it can be monetized by selling it to entities that want it. When an influencer creates content, attention is paid to it. This attention is valuable because it can be monetized by redirecting it to entities that want that attention. Do you see the parallels?
In any case, what is paid, data or attention, is not money but something that can be exchanged for money. That process of exchanging these things for money, which I called “monetization” in the examples above, creates enormous inefficiency in the market. For example, consider what you pay when you use social media to gain followers. On the one hand, you pay with data but you get paid with attention. What is the exchange rate for these things? To what extent does that rate change and under what conditions will it change? You probably have no idea; These aren’t even complicated questions and we literally have no idea. People cannot make rational economic decisions when there is so much ambiguity in the market.
Just at this point you may begin to notice that the central problem with today’s Internet (or “Web2”) lies in the sorry state of today’s “Internet money.” Yes, fiat currency is pretty bad, but at least there is a single currency. unit of account for different things and there are somewhat known and stable prices. And although there is a money printer, at least some judicious restraint is shown on some occasions. In contrast, using attention and data as Internet currency is like using attention and data as Internet currency. pebbles and feathers to buy food and pay rent.
Where the web went wrong is not really a problem caused by big tech corporations or the surveillance state. Instead, the problem is that humans haven’t discovered a money that works well for the web.
bitcoin (exclusively) works well for the Web
The reason attention and data are used as Internet money is that they act as a form of instant microtransactions. Both are practically infinite, so they’re good enough to transmit microscopic packets of value without interrupting the user experience, although neither of them are good money. (As an aside, the inevitable UX disruption caused by a cumbersome blockchain-based Web3 Internet is exactly why Web3 in conventional narrative form will never take off.)
Although fiat money has been digitized, it still lacks a lot of transnationality, speed, divisibility, and other things that native internet money needs. The arrival of the stablecoin is perhaps the biggest improvement in this regard. For example, USDC on ethereum can be divided into small fractions of a cent (the indivisible unit of a USDC is worth much less than a satoshi), is borderless, and can be sent via ethereum rollups to achieve finality. very fast payment.
The main flaw of the stablecoin is that it is not a bearer asset and therefore has counterparty risk. The stablecoin issuer is assumed to have real fiat money for each stablecoin he issues. This may not always be the case. Even a CBDC implemented as a bearer asset is only a bearer asset to the extent that the user uses it for “approved” transactions. A licensed CBDC network can easily freeze accounts without any justifiable reason. In an increasingly politicized network, bad currencies like attention (they can simply lock your account) and data (they can use your data to verify that what you are doing is authorized) and CBDCs are all prone to censorship.
The other problem with stablecoins is that they are usually hosted on proof-of-stake networks. PoS can never be as unreliable as proof of work because it requires external checkpoints to help with consensus. In contrast, bitcoin is a true “crypto” because it relies solely on cryptography for its security.
There is another reason why bitcoin works exceptionally well for the web, which I consider quite underrated. While both bitcoin and ethereum scale across layers, bitcoin‘s L2 approach (predominantly the Lightning Network) favors state channels, while ethereum‘s L2s are mostly rollups. State channels are the superior way to scale payments. They allow privacy by default and reject the need for global state consensus. In fact, this is like cash: private by default, with no known global status. Rollups, on the other hand, require global state, which means having to address data availability issues and other complex issues. Today, most prominent ethereum rollups are functionally as separate L1s with their own global state consensus rules. Assets are also less fungible because the same base layer asset attached to different stacks is not treated as the same asset.
Finally, state channels allow for high-speed microtransactions. They will always be faster than rollups because rollups must propagate data to all nodes, while state channels are only between two individuals. Overall, bitcoin is the best option for native Internet money because it is the safest bearer asset with the most appropriate payment infrastructure.
“Read write own” or “read write work”?
Web3 touts an Internet powered by smart contract blockchains that, through a token economy, could enforce ownership of users’ data and allow them to earn revenue from this data. This was famously labeled “read, write, own”, which juxtaposes Web2’s “read, write” frame and Web1’s “read” frame with itself.
The problem is that no one can “own” data in any practical sense. Once data is revealed, you cannot force someone to forget it or not use it. The only data you can “own” would be that which no one else has. But generally, as soon as you reveal that you have the data, you also reveal it and give up your only practical claim of ownership. Only asymmetric systems allow you to reveal possession of knowledge without revealing knowledge (think zero-knowledge proofs, or perhaps more familiarly, signatures via your seed phrase).
This is the main reason why “read, write and own” was NGMI from the beginning. Another reason is what we’ve already talked about: focusing on data is completely the wrong idea. Data and attention are simply bad money that must be replaced with good money. Trying to “own” the data is foolish. People generate data every second. What’s the point of owning something like that?
bitcoin is the money that can replace data and attention. No one can produce more bitcoins. Having a single, liquid, non-fragmented medium of exchange will completely unlock a free market for Internet-native companies.
That’s why I say that the new Internet (the next “Web3” that users will actually use) will be a “read, write and work” Internet. If data and attention are no longer valid currencies, then the only thing left is to use creativity and speech – one’s works – to earn the real currency. There is an interesting philosophical parallel here. Proof of stake, so favored by Web3 venture capitalists, will predictably imagine a “own” rent-seeking value proposition to project their preferences to the future Internet. Bitcoiners understand that ownership only makes sense when there is true scarcity and proof of work.
Conclusion
My position is that bitcoin is the most promising Web3 token out there. The reason privacy and censorship are issues on today’s web is because bad money like data and attention are the current currencies of the web. As bitcoin becomes the Internet’s preferred currency, it will absorb the value of these inferior currencies, much like what it is already doing with certain fiat currencies. Fix the money, fix the website. That’s Web3 reinvented with bitcoin.
This is a guest post by Allard Peng. The opinions expressed are entirely their own and do not necessarily reflect those of btc Inc or bitcoin Magazine.
