The blockchain tide is out
By Siddharth Pai
The carnage we have seen in the past few weeks in the markets has been as sobering as a bad hangover that just will not go away. Meanwhile, the crash in blockchain-based cryptocurrencies has been vastly more brutal. According to The Economist, in November 2021, the market value of cryptocurrencies was almost $3 trillion. That fell to $2 trillion by mid-April before plunging by another almost 40% to around $1.2 trillion as I write this. The market has also seen the sensational defrauding and complete collapse of cryptocurrency based ‘virtual banks’ such as Beanstalk and the collapse of stable coins such as TerraUSD/Luna.
Governments rightly do not like alternative currencies since these interfere with their ability to manage their own fiat currencies, and more importantly, macro-economic policies in their own nations. In addition, it allows for fraudulent activity on a massive scale, with no recourse to law. Cryptocurrency’s critics have long argued that it is useless—unless you are a money-launderer or conman—and predicted its eventual demise. The current crash will deepen their convictions.
Separately, I wrote by invitation some weeks ago in this space that I was hopeful about Web3, the promise of a decentralised web which is a promise of non-cryptocurrency uses of blockchain. Blockchain as a technology is fascinating when its uses outside cryptocurrency can be instantiated successfully. Loosely, Web1 was static and decentralised, Web2 (today) became centralised and spawned platforms such as Facebook and Google, and Web3 is a return to the decentralised nature of Web1, while retaining all the advantages of Web2.
I also noted in this space that the detractors say that all Web3 is going to do is to move control of the internet from today’s behemoths such as Facebook and Google over to another set of behemoths. (Or indeed, to the same behemoths who will simply rebrand and reposition or pivot themselves to the new centre of gravity).
I have been playing around with Web3 to get a better handle on what it looks like. I have created a Web3 domain and am considering what to do with it next.
As of now, I own no cryptocurrency, nor have I created a non-fungible token. I have stayed away so far because the varied takes on the 2007 vintage technology are moving so fast, and the hype is so high that my risk preferences simply will not allow me to take active part just yet. (And yes, by the way, blockchain technology is 15 years old but has only now begun to catch everyone’s attention when used outside the cryptocurrency world).
I now realise that I may have been too naïve and that the detractors may be right. First off, it takes a generational mindset to allow for moving all aspects of one’s life into a digital world. My children’s generation seems much more willing to live with this than I am; I simply have a visceral fear of roller coaster rides—whether they be in real world amusement parks or in the financial markets.
Also, doing anything in Web3 is unbelievably confusing. If you want to get anything done and are not someone who can write their own code or drag and drop from code libraries to execute a bunch of sub-routines, you simply click ‘OK’ on several prompts you don’t understand, thereby ceding control to a centralised middleman who helps you with what you want to get done. The convenience of getting something done quickly appeals to our nature as human beings, and we are not patient enough to work out everything on our own. And if the service is ‘free’, it is all the more reason for us to just click that button.
This is not unlike how the Web2 aggregators got access to all our personal data—we simply clicked ‘OK’ – and still do—when faced with long legal agreements about what was going to be done with the data, or with the cookies we allow onto our phones and PCs. Let us not forget that our mindless handing over of this information was what spawned the centralisation of Web2 in the first place.
If we think back to how Web2 got turbo-charged, a cardinal tenet becomes readily apparent. Ordinary people (at least of my generation) do not want to run their own servers 24×7 and probably never will. The entire premise of the decentralised Web1 was that everyone would be both a consumer and a publisher of data, with our own websites, mail servers and so on, all simply connected via networks. That did not eventually happen.
We turned to aggregators who made things easy—from Hotmail to Yahoo to Google. What is more, with the move to the ‘cloud’ in recent years, even large organisations that were used to running their own IT infrastructure happily ceded control to outside organisations such as Amazon Web Services, Google Cloud and Microsoft Azure.
With Web3, it is inordinately difficult—or near impossible—to write code on your phone that will interact with an underlying blockchain. According to Wired, almost all Web3 apps rely on one of two companies, Alchemy and Infura, to do that. So also the digital wallets that users store crypto assets in. Nearly every Web3 product relies on a middleman to say what is happening on the blockchain. It is more than just an oxymoron that users must rely on one or two (centralised) middlemen to transact on a system that supposedly makes centralized trust in organisations such as banks obsolete.
Be prepared—but watch from the sidelines for now.
Co-founder, Siana Capital; Author, “Techproof Me, The Art of Mastering Ever-Changing Technology