The promises of crypto, bitcoin and Web3 have always sounded interesting as a libertarian answer to central banks. But the core question that we can pose towards these decentralized solutions is this: when will the added value of decentralization actually outweigh the inherent inefficiencies (i.e. costs) of decentralization?

Some of the blessings of the crypto age seem to have been an increased thinking about user data, data safety, user generated value, better UX experiences, and increased discussions about trading and investing for a new generation. Cryptocurrencies have shown their value, the blockchain itself is still a good idea as a concept, and there are already numerous niches where the value of these technologies have shown themselves.

But the value of web3, the decentralization of user data on the web, has not. The prime reason is that the functionality of web implies costs for things that we consider ‘just browsing the web’ today. If the promise of Web3 becomes real, user data will be hidden and logging into websites will happen through some third party crypto solution that makes sure your data stays yours, but can greenlight your login without actually sharing any real details with the company you’re logging into. You just show your badge, and it will magically tell the digital bouncer if you’re allowed in or not.

Sounds pretty great, right?

It would, if a transaction like that would cost a fraction of a cent, like how sending your email address and encrypted password to a website to log in also costs only a negligible amount. But in web3 solutions, just logging into a platform can cost money. Doing anything on that platform can pretty much cost you - sometimes for a fraction of a cent. More often, when the network actually starts getting used, costs like these shoot up.

Imagine having this for the regular web - that logging into your email is more expensive in the morning than late at night. If we would model a future decentralized web around web3 ideas like this, we would pretty much make the web ‘pay to play’. It would turn the web (even more) into a marketeer’s dream and a user’s nightmare.

Expensive web browsing

So Web3, as it is currently set up, is pretty much a really expensive variation of browsing the web right now. That’s why all Web3 solutions and innovations are still money games, gambling apps or trading platforms of other crypto assets. They pump around the coins people believe in, but they don’t really seem to provide any service that solves an actual real-world problem. They are entertaining and their UX’s are often hugely inspiring, but they’re worth little more to the world than that website that sells a pixel of its site for 1 dollar each. Fun concept, inspiring for anyone who wants to make money online, but not an urgent technical solution to a deeper problem of the web that people actually care about.

The promise that the price of running smart contracts would go down to acceptable levels (like a fraction of a cent) has been made often, with every Ethereum update promising to bring some next level solution. Except that any time when the network actually becomes popular, it gets clogged and network costs quickly rise to astronomical. We have not seen any solution to this problem.

Some will call us cynical but it’s nice to be able to point at something and honestly say it’s not working. And when it comes to web3, NFTs and most cryptocurrencies: most of those projects are not working and only afloat because their business model is more like an NGOs running on donations, than a business making money because it is selling a good product. There are exceptions, but they are rare and often suffer from some other unique technological problem that bottlenecks their growth.

All of this undermines trust in these solutions. Because even with trustless solutions, the core value being debated is still… trust. As long as a lot of people are currently happy to trust their data with institutions like Google, their government, or their sports club, then why compete with what’s already working pretty well? Which problem might not need a new trillion-dollar digital solution but could do better with just some better governance?

Considering the amount of forms you have to fill out whenever getting in touch with anything remotely ‘official’, the United States has already proven it has a decentralized identity system. Most of the world uses more centralized identity systems, where a single social security number connects information like citizenship, insurance status, business or real estate ownership and government support. In countries where trust in governments is less disputed than in the United States, these highly centralized systems work very well and do not seem to be in need of any decentralization.

Decentralized identities

There are a few very niche applications where decentralized identities might be valuable enough to become acceptable. And it’s basically any system in which valuable things are traded by anyone who wishes to stay anonymous for whatever reason. Think decentralized information systems for sex workers, who would be able to show some official involvement in programs without having to show their true identity.

Drug licenses have been another use case in which this idea has been floated. Some governments, like in Barcelona and some regions of the Netherlands, wanted to have controlled experiments with legalization of cannabis for example by having people sign up to a cannabis social club in order to be eligible. Some of these initiatives failed because people preferred staying anonymous over legally being registered as a ‘drug user’. There’s a case to be made here that decentralized identities could give some trust in systems where trust is extremely low.

Web3 beyond NFTs

Most Web3 projects were funded by the NFT-boom. But NFTs are little more than a modern echo of that guy who sold people pieces of the moon. One can claim NFTs invented a new decentralized market for digital artists, but the reality is that to this day, pictures are not actually put on the blockchain. Therefore, an ‘NFT’ is currently still nothing but a pointer to a centralized website that hosts your NFT.

Imagine the NFT is a car. The ‘NFT’ will in this case function as a certificate of ownership. But the actual physical vehicle would be sitting in a parking lot run by Some Web3-Crypto Company - only there for you to take a photo of and never drive.

So no- crypto isn’t entirely useless, but it doesn’t seem to bring a lot of value to society either. Because on the other side of these couple of entertaining use cases, crypto eats up a lot of resources, whether it be cokes, monetary or time better spent elsewhere.

So when it comes to the idea of web3, it would be great to continue to focus on issues like user privacy, ownership of content, and decentralizing power on the web while keeping trust. But the actual technical solutions that are offered to get there right now, will probably go the way of blimps, Google’s Stadia, and -hopefully- the Hyperloop.