By Alex Tapscott
Missionaries vs. Mercenaries
Many Web3 founders approach their work with missionary zeal. They not only want to build products and make money, but also want to rewire the economic power grid and the old order of human affairs for the better. To them, Web3 is not merely a technology toolset but a grand social and economic experiment playing out in real-time. It is frankly inspiring and one of the many reasons I remain so bullish on the asset class and the technology.
In any field, there are missionaries and mercenaries. The Bull Market lured in a fair share of mercenaries from Wall Street and Silicon Valley to Web3, drawn by the prospect to make quick money and be part of the “New, New Thing.” Many of them are returning to their old jobs after failing their trial by fire. But the missionaries are still here, and they are trying to figure out how to build on the success of the last bull market to reach the next billion Web3 users. As it turns out, they are going through their latest crisis of faith.
Pragmatic vs. Dogmatic
“Innovation and entrepreneurship are not ‘root and branch’ but ‘one step at a time’. They are “pragmatic rather than dogmatic and modest rather than grandiose.” - Peter Drucker
Religious metaphors are justified when describing this industry, given crypto’s many past schisms. Bitcoin true believers assert all other cryptoassets are “sh*tcoins,” despite their own high-profile fractures in the past. Many Ethereum backers see little value in alternative platforms like Solana and Avalanche. To be sure, many Web3 builders and users are open-minded and can take a balanced view. I count myself among them. But it is also clear people migrate to projects that fit their values. I know many Ethereum users who like Bitcoin but can’t stomach the energy usage. It is also evident that each of these groups has its fair share of missionaries, certain that their beliefs are incontrovertibly true.
And while all missionaries are dogmatic, some are more pragmatic than others. The Jesuit missionaries in North America were rigidly dogmatic, but they also were flexible when it suited them, adapting their teachings to existing native customs, languages, and narratives. The Bible and Lord’s Prayer were translated to Wendat, the local language. The story of Jesus, told in the Wendat Huron Carol, reimagines the birth of Christ from a Huron perspective: “Within a lodge of broken bark, the tender Babe was found, a ragged robe of rabbit skin, Enwrapp'd His beauty round.” No Bethlehem in this rendition.
The Dogma of Decentralization
In Web3, this tension between dogma and pragmatism flares up in the debate over decentralization. Since the beginning, decentralization has been a cornerstone of Web3. In a 2019 interview for my book
Financial Services Revolution, Maker DAO co-founder Rune Christensen described what he saw as the core features of a DeFi application: It must be tamper-resistant (meaning it is difficult to shut down), run on a blockchain, and be trustless, meaning as a user you are not relying on a central party or platform. Today, venture capitalists and many founders tout the benefits of “progressive decentralization,” which assumes the end state should be as decentralized as possible. Ethereum’s early backers spoke of a world computer running unstoppable code.
Decentralization has some limitations. If you are not relying on a central party to execute a transaction, you also cannot rely on them to mediate a dispute or reverse a fraudulent transaction. You cannot seek damages because there is no central party at fault. This issue became relevant again recently with the Binance Bridge hack, which led to the theft of nearly $600 million of BNB, the chain’s native token, before the network was paused and much of the theft reversed, thanks to Binance being highly centralized. Some would say any blockchain that can be paused and reversed is no blockchain at all – just another centralized system, while others thought the pause sensible considering the potential loss. After dipping on the news, BNB again traded in line with the market, suggesting investors and holders didn’t penalize them for the decision to pause, and may have even rewarded them for it.
Even MakerDao, heralded as a successfully decentralized organization, is becoming more centralized. They recently announced they were buying $500 million of treasuries and bonds as collateral for the DAI stablecoin.
i I gather they felt the need to centralize to compete with USDT and USDC, which have dominated the stablecoin race.
Centralization as a Stop-Gap
I am of the view that some centralization is inevitable until the technology scales. For example, many Web3 applications run on AWS. Eventually they will run on decentralized clouds, but we are a long way off. Metadata for NFT’s sit on centralized servers at OpenSea. Eventually, when Ethereum can handle it, that data should be on chain. The current limits don’t mean we shouldn’t run dApps or build NFT projects. There are other Web3 applications that may always have some level of centralization: for example, rendering a real-life Metaverse is not possible on a centralized cloud like AWS and may never be possible on a decentralized cloud. In this sense, Web3 can be re-cast as the Web3 toolkit we use to build apps of various levels of decentralization. Today, at least, centralization is a stop-gap. For any project considering a more centralized architecture, be careful that your medicine does not kill the patient.
