Coinsights #7: Why Web3 Might Fail

Welcome to the 4 new people that have joined us this week! If you’d like, come talk about today’s article in the Coinsights Discord and earn tokens while you’re at it!

Today, we’ll be talking about Jay Pinho’s article titled “Web3? I have my DAOts.”

Is web3 actually decentralized?

Jay’s first point is that the description and promises of many “decentralized” systems are actually, well, centralized. Systems like ENS (Ethereum Name Service) are currently governed by “trustworthy individuals in the Ethereum community” and NFTs you buy through NBA Top Shot are actually bound by a fairly strict Terms of Use.

Sure, but there are plenty of projects that are truly decentralized and it’s clear that this is where the future lies. As the state of web3 progresses, there will be increasingly less tolerance for projects that behave in the manner of ENS and NBA Top Shot. This ties back to Coinsights’ earlier article on DeSo, where the community has unprecedented power to create a better version of a product because the data is all open!

Ownership & Uniqueness of NFTs

It’s clear that the NFT world is full of scams, and it’s sad to see artists lose out on millions of dollars. Jay’s article (and this Tweet taken from his article) makes it clear that fraud is rampant in the community and that it needs to stop.

Davison Carvalho @colorblindmess

Someone made $170k selling my artworks as N F T. I do not sell art on crypto places, in fact, I do not sell art anywhere, not even prints. It's strange to see someone loving my art and paying big to own it, making a thief rich, while my hospital bills piles up. Nice.

In my eyes, there are two things that need to happen to protect both artists and consumers from NFT scams:

• Blockchains need to be able to store actual image and video data, rather just a link (even if it’s to IPFS). This is why DeSo is so exciting – are there others that offer similar storage capabilities?

• When someone attempts to list a collection on a site like OpenSea, there should be a strict verification process that ensures the uploader is who they actually claim to be. I wonder if there are ways that NFT marketplaces can reverse image search the web to find the original artist and ensure verification along that dimension as well. Just because I can prove that I’m Shekar shouldn’t mean that I can create and sell an NFT of the Mona Lisa.

I’m confident that these will happen in the medium and potentially even short term.

A Blockchain Isn’t Needed and They’re Dumb Anyway

Yes, Visa can do 1,700 TPS. Yes, Ethereum does about 15 TPS and charges ridiculous gas fees. But yes, blockchains will get faster as the technology evolves and increasingly more people work in the crypto. Just see Solana!

Aside from the current technical limitations, a common argument against crypto is that most people don’t actually care if something is on a blockchain, and in some cases actually prefer for things to be mutable. As Jay mentions:

If you’ve ever been the victim of identity theft and had funds fraudulently removed from your bank account or charges added to your credit card balance, the reversibility of transactions is something you’ve almost definitely benefited from. It’s not a bug; it’s a feature.

Even as tooling and protections inevitably evolve, there will certainly continue to be hacks and simple mistakes like this one. Smart contracts lack expressibility and are simply just not that safe right now. This is a real concern and not one that has really been addressed yet by the crypto mainstream - the risk is just considered “part of it.”

I wonder how this will be addressed in the future – perhaps a developer DAO that checks smart contracts for bugs, some intermediate escrow account that you can check before money is transferred, or something else! Whatever the solution(s) end up being, I think whoever is able to make web3 safe for the average consumer can win big.

The Real World Bridge Isn’t Built Yet

There are two missing links between smart contracts and the real world: regulations and triggers. I think that the regulation side will come in due time: Coinsights’ first article ever covered a bit about the surprisingly productive hearings between some of most popular people in web3 and Congress.

The part I’m not so sure about is how to get real world information into blockchains. chain.link provides an API that reports on real world events backed by a decentralized oracle network. However, these oracles have to get data from some centralized entity. How else would they report on the score of a football game without actually being at the game itself?

In short, it means you have to trust someone. And like anything that involves trusting other people, sometimes that trust turns out to be misplaced. That is, when the oracle itself is compromised, so is your transaction that relies on it.

One idea that comes to mind is based off of how the Silk Road used to operate. There were three parties for every transaction: the buyer, seller, and the marketplace itself. In order for a transaction to go through, at least two of the parties had to sign off. I wonder if someone could use this model but attach a credibility metric on top of it: you get a small fee for acting trustworthy but are penalized if you act in bad faith. In the case where the buyer and seller disagree, the marketplace can then lean back on a system like Chainlink. I’d love to hear your thoughts in the Discord or in the comments!

Wrapping Up

I certainly didn’t cover all of the points made in Jay’s post and encourage you to read it in full. It’s clear that web3 still has a while to go before it goes mainstream, and the problems mentioned today will need to be solved before that happens.

What’d you think of today’s article?

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