Bitcoin as Religion, Web3 as Greed

A Year-End Discussion on Crypto and Web3

As my final workday of the year concludes, let's delve into a discussion surrounding cryptocurrency. This morning’s focus is on the evolving landscape of digital assets.

Jack Dorsey, the former CEO of Twitter and current CEO of Block – formerly known as Square – recently ignited debate within the crypto community. He voiced his preferences regarding blockchain technology, specifically criticizing decentralized internet initiatives that do not align with the principles of Bitcoin.

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To ensure clarity and avoid misrepresentation, let’s examine Jack’s core statements, beginning with the initial tweet that sparked the conversation:

This initial statement elicited a strong reaction from prominent figures within the web3 community.

Shortly thereafter, Elon Musk also contributed to the discussion:

Several key points are being debated, and some clarification may be helpful for those not actively following Twitter. Here’s a breakdown:

Ownership in Web3: Jack contends that the actual owners of web3 projects are not the everyday users, but rather venture capitalists and their respective investors. He further suggests this power dynamic is unlikely to shift.
Critique of Web3: In response to accusations of hindering web3 development, Jack asserted that constructive criticism can guide individuals toward more meaningful endeavors.
The Location of Web3: Elon Musk inquired about the tangible existence of web3, expressing difficulty in locating it. Jack subsequently directed a pointed remark towards a16z, a prominent venture capital firm, implying they are central to web3 funding and, consequently, control.

The core takeaway is that Jack, a long-standing advocate for the original cryptocurrency, Bitcoin, harbors reservations about many web3 projects.

It is significant that these two influential figures have voiced concerns regarding the influx of capital into the decentralized economy in recent years. Traditional financial entities are increasingly seeking involvement in the potential returns offered by web3.

Ownership Dynamics in Web3

The central argument presented by Jack Dorsey revolves around the ownership structure of prominent web3 companies. He contends that these corporations are largely controlled by venture capitalists, and consequently, are subject to the priorities inherent in venture capital investment.

The term "venture incentives" is often used as a euphemism for maximizing financial gains for venture capitalists and their investors through company operations.

This observation holds considerable truth. During the third quarter of 2021 alone, venture capitalists channeled over $6 billion into cryptocurrency initiatives. This figure illustrates the substantial extent to which the crypto landscape is being acquired by traditional, private-market investors.

Jack Dorsey’s critique extended beyond simply identifying venture capital involvement. He asserted that web3 projects possess an inherent vulnerability stemming from the financial agreements made with external funding sources, and that these projects are, in essence, centralized.

Within the crypto community, labeling a project as "centralized" is considered a particularly harsh criticism, rivaling the dismissive terms like "nocoiner" or predicting financial failure.

Is Dorsey’s assessment inaccurate? The evidence suggests otherwise.

The influx of capital and support from venture firms is undeniably driven by the expectation of profit. This influx frequently results in a degree of centralization. A notable example is a16z’s investment in both Coinbase and OpenSea, while Coinbase simultaneously plans to enter the NFT market – a domain currently dominated by OpenSea.

Furthermore, certain projects, such as Solana, have distributed a significant portion of their tokens at reduced prices to venture investors. This effectively allocates future gains to accounts that are already substantial, leading to centralization of both ownership and potential returns.

This level of centralization stands in contrast to the original, more decentralized ethos of Bitcoin. Web3 proponents appear generally accepting of utilizing external funding to expedite the development of their token-based projects, essentially relying on traditional finance as a stepping stone.

However, Bitcoin’s growth did not necessitate multiple rounds of venture capital funding. It achieved traction through a compelling concept that continues to resonate with users. This is a crucial point for consideration.

A significant counterargument, however, must be acknowledged.

Bitcoin as Faith, Web3 as Profit-Seeking

Although alignment on crypto perspectives is welcome, complete agreement with Jack Dorsey isn't possible.

Specifically, the assertion that Bitcoin lacks centralization is debatable. A significant degree of centralization exists, often underestimated by many. Recent research, as reported by Baystreet, indicates that roughly 0.01% of Bitcoin owners control 27% of the existing 19 million Bitcoin.

Considering the two prominent, often conflicting, ideologies within the crypto space – the Bitcoin maximalists and the web3 proponents – reveals a fundamental divergence.

Bitcoin maximalists exhibit a faith-based conviction that the initial cryptocurrency represents a perfect, decentralized solution, dismissing subsequent projects as flawed. Conversely, web3 embodies financial opportunism, aiming to monetize all aspects of the online world, effectively enabling traditional investors to control key positions within the decentralized ecosystem.

While supporting Jack's critique of web3 is agreeable, his overarching philosophy isn't entirely shared. Nevertheless, he successfully highlighted the lack of substance behind many ambitious web3 endeavors, exposing them as lacking genuine innovation.

Season's Greetings.