Jan 5, 2022 - Economy

There's an internet debate raging over Web3

A phone with tomatoes by the screen and twitter opened

Illustration: Gabriella Turrisi/Axios

Web3 is many things, including the subject of a Twitter food fight over whether it's the next Internet or just a niche financial technology.

Why it matters: There are billions of dollars at stake in being right, whether via investments in Web3 startups or in legacy companies.

On one side are skeptics, including Web2 luminaries like Box's Aaron Levie, Airbnb's Brian Chesky and (to some extent) Jack Dorsey.

  • Their basic argument is that Web3 provides utility when it comes to financial applications, including payments and DeFi, because there is consensus on the units of value (dollars, euros, etc.). That's a giant total addressable market, but just a fraction of total internet software.
  • Beyond that, they say, Web3 has yet to show there is much cause for user adoption. For example, what can the Web3 version of Airbnb or Box do that Airbnb or Box don't already do?
  • Moreover, speculative trading frenzies around token rollouts often make it difficult to gauge product/market fit, corrupting a key part of the startup development timeline. Put another way: Are the early users more interested in the utility or in getting rich?
  • "Certain VCs are oversimplifying the problem, particularly the protocol wars that end-users never had to care about before," Aaron Levie tells Axios. "You've obviously seen the infighting between Bitcoin and Ethereum, and now between Ethereum and Solana... Customer adoption becomes much harder when you have so much customer consensus building required."

On the other side are evangelists, like Andreessen Horowitz's Chris Dixon.

  • They seem to view the Web 2.0 folks a bit like cloud computing advocates viewed on-premise stalwarts years ago, dinosaurs who refuse to see the visible meteors heading toward them.
  • Obviously they believe the tech architecture will prove superior, particularly thanks personal data ownership/portability and the (at least theoretical) lack of central ownership.
  • Sure valuations are sky-high, as evidenced by NFT marketplace raising $300 million at a $13 billion pre-money (it's also in talks to buy Dharma Labs, a digital wallet for cryptocurrencies, per Kia). But how different is that, Dixon argues on Twitter, from SaaS companies being valued on multiples of projected growth?
  • "Some of what you'll see is a better way of doing existing things, like why thousands of photographers and other artists who've for years used Instagram are now joining with us," explains Kayvon Tehranian, founder and CEO of NFT auction startup Foundation Labs. "But it's also about a new cohort figuring out entirely new digital businesses."
  • Tehranian, whose company arguably falls into the fintech exception, also downplays Levie's protocols concerns: "There has always been competition for standards ... The early days of the Internet was the Wild West. Eventually you start having winners and then you get scale."

The bottom line: There is still tons of work to be done before either side is proven right or wrong. But claims staked today will have tangible future impacts on those who make them.

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