Wait, Is Web3 Actually a Capitalism Long Con?

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Web3 boosters say they’re building the digital utopia we’ve long been promised — but looking past the rhetoric makes that impossible to believe.

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For Business Insider, tech writer Paris Marx argues that Web3 is a plan to further commercialize the internet and build a new set of monopolies.

While the price of bitcoin soared to its peak of nearly $70,000 in November 2021, it subsequently fell more than $67,000 a coin to just over $35,000 on January 22, prompting critics to become even more outspoken about their concerns with NFTs, DAOs, and the Web3 space as a whole.

One of the most trenchant is Marx (Paris, not Karl, though there are similarities in attacking Big Capital), who aims to prick the bubble.

“Crypto evangelists promise this new internet will be more democratic and free of corporate control, where every user will have unprecedented opportunity to make a living online and own their virtual goods,” he writes.

Instead Web3 is just another incarnation of control, monopolies, greed and another revolutionary technological advancement that failed to live up to its promise.

Web3, its backers argue, will finally fulfill the cyberlibertarian promises of earlier iterations of the internet. That is, you’ll get all the benefits of big platforms — ease of use, access to community, and creative potential — and none of the drawbacks: no one selling your personal data, no big companies taking high fees for themselves or government regulations stifling what you do.

The intent is that we can all own pieces of internet services through ownership of tokens (NFTs), and that those tokens give users property rights. Instead of users owning nothing, Web3 is supposed to allow us to buy and sell every little part of the internet.

But as Marx points out, commercial pressures have a habit of getting in the way of emancipatory claims.

He deconstructs the Web3 model. Take mining transactions on the blockchain, for example:

This process is highly concentrated. In order to complete a transaction, or add a new block to the chain, a computer must solve complex math problems. In the case of bitcoin, only about 50 miners (0.1% of the total number) control half of the mining capacity, according to a 2021 study by the National Bureau of Economic Research. For Ethereum, just two mining pools controlled more than half the computational power as recently as 2020, according to a report that year.

That’s important, Marx contends, because once a coordinated group of miners controls more than 50% of the power, they can interfere with the process of adding new blocks, stop other miners from completing them, and effectively do whatever they want with transactions on that chain.

On top of that the space is quickly consolidating around dominant companies in various niches, such as the crypto exchange Binance, the NFT marketplace OpenSea, or services like Infura or Alchemy — in the same way that e-commerce, social media, and content platforms also consolidated into a few major players as their sectors matured.

“There’s good reason to believe that consolidation will continue,” he argues. “Since most people won’t be able to (or don’t want to) figure out the technical details of a system, there is an incentive for companies to offer new users simpler access to the same tools in exchange for doing it on their service — which is exactly the goal of the venture capitalists getting involved in the space.”

The mounting incentives for centralization mean that Web3 will likely end up looking much like our current internet, just with a different set of corporate megaplayers.

That brings Marx to one of the biggest problems with the Web3 ecosystem: It’s deeply reliant on cryptocurrencies, which are less currencies and more speculative financial assets.

Other critics have observed that the crypto house of cards resembles Ponzi or pyramid schemes.

“The entire space is plagued with practices like wash trading to artificially boost the values of NFTs and pump-and-dump schemes that inflate coin or NFT values before the creator cashes out with everyone else’s money.”

As Microsoft co-founder Bill Gates observed, crypto does not produce value; it just redistributes the money that enters into the system like a casino.

“In that way, it’s a negative-sum investment,” Marx says. “There are a bunch of players, like the exchanges, front-running customers’ trades and taking cuts for themselves along the way. So unless you buy early or have a lot of money to begin with, you will lose every time.”

Here’s the crunch: “Web3 advocates want the rest of us to believe that this is the real emancipatory version of the internet. But it can’t be because there’s a fundamental conflict between the lofty goals of freedom and decentralization, and the interests of venture capitalists swarming to Web3 to build companies that can monopolize their segment of the industry.”

Marx, not alone in calling out these trends, wants anyone thinking of jumping into crypto to look critically at what is being built — from the “rampant financialization” and the “creation of artificial scarcity” by extending property rights, to digital goods and the “enormous energy requirements causing blackouts in many countries” — and ask whether the future Web3 companies are building really aligns with their rhetoric. And when we see that it doesn’t, we can start imagining what should be built instead.