The Web3 movement has roots in today’s economics and politics. It’s a response to the ongoing systematic issues of lack of trust in institutions, income inequality, and the diminishing control of our virtual being from wealth and data to digital assets and creative output. A movement that challenges existing power dynamics of centralized government, banks and big-tech dominated economy has to be political.
The transition to Web3 stems from the pains of big-tech-dominated Web2. The Web2 era was about siloed, centralized platforms run by corporations. Most of the value accrued to a handful of companies like Amazon, Google and Facebook. Web3 is a decentralized echo-system built on the blockchain, where you can create and own the value you put into the network.
When Marc Andreessen published his famous article “why software is eating the world” back in 2011, tech represented about 6% of the total GDP. Fast forward 10 years and today, tech companies make up 11% of the total GDP.
The pandemic has further accelerated some pre-existing trends across markets: the adoption of tech and the deepening of income inequality. In addition, the advancements in automation, machine learning, and the massive amounts of data collected have further accelerated Big Tech’s dominance of our attention, economy, and politics.
Although these leaps of innovation are leading to unprecedented productivity output, it is setting society up for a bigger wave of income inequality as predicted by economists Erik Brynjolfsson and Andrew McAfee back in 2015. Think of Thomas Piketty’s equation, when the average return on capital exceeds the rate of economic growth, it accumulates further wealth in the hands of those who already have wealth, thus threatening to create an oligarch.
Not only are the economic gains of tech mostly concentrated in the pockets of a few, but the companies and figures that own and run our internet are mistrusted by both the people and their elected officials. According to a 2019 Pew research, young people, POC and minority groups trust in corporations and institutions is at an all-time low.
The current corporate-dominated internet structure is deemed unreliable and undesirable. We have witnessed almost 100 major data breaches per day last year. Tech companies have been embroiled in a series of controversies over the past decade, ranging from irresponsible management of user data and privacy breaches, monopoly and antitrust, to disinformation and algorithmic bias.
The lack of trust in institutions combined with income inequality and diminishing control over our virtual being (wealth, data, or content) have certainly influenced and set the stage for the Web3 movement. Whether these problems are attributed to Big Tech or the government or even individuals, whoever you want to blame, the pains were there and the vanguard has already moved to address it.
Decentralization is the new ethos
Decentralization vs. centralization is a political question at its core. The power of Web2 has been concentrated in the hands of a few, whereas Web3 is about people taking some of the power back. Anything that shakes power dynamics, takes from the few, and gives to the many is a political idea, whether technical or not.
Decentralization has always had its roots in political resistance, challenging the power structure of both governments and tech corporations. Peer-to-peer resistance to censorship and control go back to torrents and the open source movement.
<blockquote class=”twitter-tweet”><p lang=”en” dir=”ltr”>I don’t want to be rich.<br><br>I want to be free.</p>— ricefarmer.eth ? (@RiceFarmerNFT) <a href=”https://twitter.com/RiceFarmerNFT/status/1464726639691063298?ref_src=twsrc%5Etfw">November 27, 2021</a></blockquote> <script async src=”https://platform.twitter.com/widgets.js" charset=”utf-8"></script>
Just like bitcoin’s creation was a reaction to the global economic crisis and failure of the financial system in 2008. Crypto was originally conceived as an alternative payment system. Smart contracts are an attempt to create a more reliable incorruptible form of legal governance. Decentralized Finance (DeFi) combines both to create the foundation for a financial system (payments, loans, insurance) that is more transparent and reliable.
In decentralized communities, tokens align network members to work together toward a common mutually beneficial objective, the growth of the network, and the appreciation of the token. This fixes the core problem of centralized systems, where the value is accumulated by one company, and the company ends up being at odds with its own users and partners.
Decentralization will increasingly become a guiding principle and an ethos that guides communities and organizations in the future as tech eats more and more into our real lives.
Last week we saw one of the oldest rivalries in tech, the Winklevoss brothers Vs Zuckerberg, float to surface. Gemini, a decentralized metaverse backed by Winklevoss brothers, raised 400 millions to challenge the vision of a centralized metaverse their archrival Zuckerberg vowed to build.
DAO and decentralized governance
Decentralized Autonomous Organization, or DAO, is the Web3 movement’s most realistic answer to the issue of community governance. It offers a solution to the principal-agent dilemma since decision-making occurs when community members reach a consensus. A DAO is a token-based, community-led entity with no central authority or hierarchy. It is fully autonomous: smart contracts lay out the foundational framework by which the DAO is to operate, execute the agreed-upon decisions, and allow for proposals and voting. A healthy, robust framework will attract more usage and members, and in turn, increase the value of the DAO tokens each member owns.
DAOs are not confined to a single legal jurisdiction; they can stretch across the globe, bringing together thousands of members regardless of their physical location or background.
Investor Li Jin predicted that DAOs can represent the next step for unions and the labor movement. Unions and labor movements have historically played a key role in shaping western democracies and beyond. Union participation significantly declined from 36% of US private-sector workers in the mid-20th century to 6% in 2019. DAOs with their equitable, community-forward approach can help prevent common issues unions face such as membership discrimination and central leadership corruption.
DAOs are certainly an interesting manifestation of a virtual social democracy without all the friction in decision-making and action, which is one of democratic governance’s biggest shortfalls.
Web3 is early in the movement but it’s rapidly attracting young bright talents that show up filled with passion to drive change. Monopolies in tech were built and sustained by ensuring monopoly on top talents. Sectors that attract the brightest minds and top engineers will likely find a way, eventually.
Klaus Schwab, Executive Chairman of the World Economic Forum, claimed back in 2016 that our world is already experiencing a tech-enabled 4th industrial revolution. Just like Karl Marx’s work was a reaction to the inequalities caused by the first industrial revolution enabled by steam engines, Satoshi Nakamoto’s work on decentralization and crypto is a reaction to our current industrial tech revolution. His manifesto on decentralization and crypto, whether it fully comes to fruition or not, are revolutionary and will likely change the way we think about ownership, value creation, and distribution for generations to come.