Yes, Web3 Has a Use Case.
No, it may not be relevant to you.
The David Letterman Problem
There’s a clip from the Late Show with David Letterman in 1995. Dave is interviewing Bill Gates and asks him:
“What the hell is this internet thing exactly? I remember a couple of months ago, there was like a big breakthrough announcement that on the internet or on some computer deal they were going to broadcast a baseball game you could listen to on your computer and I just thought to myself, ‘Does radio ring a bell?’”
Even Bill Gates can do little to convince Dave of the internet’s merits. Bill’s awkward reach for use cases – “You can record games”, “You can find baseball information online” – are all skillfully debunked by Dave -- "I have a tape recorder", "I call a stats hotline."
I have been thinking about this clip a lot this week as Packy McCormick, Mike Dudas and Marc Andreessen – each of whom I look up to – have struggled to outline a compelling use case for Web3.
The question of “use cases” has also taken on increased urgency as crypto markets have cratered.
Let’s start with an obvious truth. Predicting future use cases is hard.
The killer use cases of the internet would have sounded ridiculous in 1995.
“Well, Dave, the most fun thing is that strangers are going to write funny 140 character messages about what’s happening in the baseball game.”
“Dave, it’s going to blow your mind how many of your friends will post disappearing photos of themselves watching a baseball game.”
Yeah, somehow I don’t think that would have made Letterman a believer, either.
But it’s not impossible to see where web3 is going. We need only look at the very real early use cases. So for this essay, Dear Reader, I’m going to see if I can succeed where some of my role models have failed.
Before this essay is done, I’m going to convince you that:
Yes, web3 has a use case (minimum viable trust),
No, it might not apply to you (if the current institutions work for you)
Even if it doesn’t apply to you today, it’s still going to create things you will use every day (because path dependence is destiny).
Skeptical? Good.
Let’s give it a try.
Who are the core Web3 Users?
The Electric Kool-Aid Trust Test
I’ve devised a really simple test for determining who will “get” Web3 and who will not. Are you ready?
Do you agree with either of these statements:
Do you believe that the existing institutions – banks, governments, corporations – can be trusted to fairly protect your interests?
Do you believe that the existing institutions – banks, governments, corporations – can meet the needs of you or your organization for speed, flexibility and reliability?
That’s it.
That’s the whole test.
If you answer “Yes” to both questions, Web3 is an unnecessary reinvention of the wheel.
If you answer “No” to either question, there’s a solid chance you have a use case for Web3.
But who are these people that don’t trust institutions?
User Group 1: “Institutions don’t protect my interests”
There’s a traditional story of how technology gets adopted. It looks like this:
Innovators and Early Adopters come first.
These are usually the same set of folks. They are white, rich, privileged, well-educated and working in tech.
Our first hint that something is different with Web3 is that these are not our early adopters. Despite the “crypto bros” that ruin Twitter and the “laser eye” scions of privilege, early crypto adopters are not, as we might expect, mostly white. Instead here’s a breakdown by Pew of what percentage of each race in the US owns cryptocurrency:
Black, Hispanic and Asian Americans are all more likely than White Americans to own cryptocurrency. Interesting….
Here's another datapoint: tech trends emerge in wealthier countries before scaling in the developing world. But, let’s look at the top 10 countries for crypto adoption:
Well that’s curious, too.
Excluding the US and Singapore, the other early adopting markets are developing countries. They all have a combination of wealth inequality and unreliable governance.
Meanwhile the most passionate crypto skeptics are individuals in the US and Europe who have good reason to trust the ancien régime. They are the winners of our current game.
I am not cynical enough to suggest that they are motivated by preserving their position. But I do think that their worldview is informed by a system that has always been fair, well-structured and protective of them. Their mistake is in assuming that their faith in institutions is, or of right ought to be, universal.
What's going on here?
There’s an obvious (if patronizing) argument that these groups are being exploited. That scammers are offering vulnerable groups a way to "get rich quick" and stealing their money. Yes, that is happening.
But it doesn’t tell us anything about why users have a demand for parallel institutions. The short answer is that the systems are actively unfair to them.
Here are four early crypto use cases that speak to these gaps in our existing systems. They are daily use-cases for many of our early adopters, but they are difficult to empathize with for many of our crypto skeptics.
Inability for Americans to invest in private markets.
In the United States today, investing in private equities is a privilege reserved to 4% of Americans. This 4% has adequate wealth to qualify as “accredited investors.” This is typically justified by saying that Americans who are not wealthy cannot afford to take financial risks. But the data does not support the conclusion that private markets are inherently riskier. It does, however, support the conclusion that these markets offer superior returns:
From Morgan Stanley’s “Public to Private Equity in the United States: A Long Term Look”, 2020. Annoying fees and transaction costs.
"International wire transfers” is often described as an early killer-use case for cryptocurrency. And for good reason. International wire transfer fees from banks cost ~$35-50. Bitcoin transfer fees, by contrast, are about $1. On newer chains like Solana, the cost is fractions of a penny. Those fees are marginal annoyances for wealthier investors. But for immigrants earning the US minimum wage of $230 per week, that price represents 22% of their earnings.
Moving around corrupt and oppressive regimes. At the Oslo Freedom Forum, human rights advocates heard about Meron Estefanos. Meron is an anti-human-trafficking activist in Eritrea. She uses cryptocurrency to send money home to her Mother. She cannot use the state’s system because doing so would expose her identity. This would risk her mother’s safety, or at the very least, the seizure of funds sent to her Mom. So she uses anonymous transfers on Bitcoin.
Hedging against currency volatility and bank failure. In Russia, Venezuela and the Ukraine, crypto plays yet another role. In these markets, political and economic instability makes banks a risky proposition. There’s not only inflation, but also the risk of asset seizure and bank closures. Is it any wonder that during its current conflict, Ukraine asked for donations in crypto?
Each of these is an institutional problem, not a technical problem.
But each could only be solved by a centralized database if we have faith in the centralized institutions that maintain it.
Each demonstrates a moment where the current system’s failures have created a need for an alternative. We'll talk about how blockchain and web3 correct for those failures.
But first – we need to talk about our other user group.
User Group 2: “Institutions are too sclerotic to meet our needs”
I belong to a different class of web3 enthusiasts. For us, institutional failure is a systemic risk not a personal one. I fancy myself an institutionalist. I wanted to go into government work. But the glacial pace of change dissuaded me.
Unfortunately, our public sector is no longer just slowing its own agencies. It is gumming up the potential efficiency of private organizations, as well. That includes businesses, social organizations and charities.
The post-pandemic era has seen a boom in new business starts (#GreatResignation). But before that, the trend was consistently negative. Americans were starting businesses at lower rates than ever before.
Why did people stop starting businesses? A 2021 Harris poll (sponsored by Zapier) captures Americans' perspective.
63% could not raise capital for a new venture. Small business startup loans are an endangered species. Crowdfunding is too regulated to be viable.
39% pointed to the complexity of starting a business. 29% saying they lacked adequate tools.
Those are failures of social infrastructure and institutions.
We see similar changes in America’s social and civic organizations. As Robert Putnam chronicled in the 90s, American membership in community organizations has declined precipitously.
Think of how easy it is to start a group chat or an email thread about a new idea. We should see a boom in new groupings of Americans working together, playing together and creating together. But we see the opposite.
Now there are any number of confounding variables here. There’s a decrease in free time for social organizations. There’s an increase in the returns to economies-of-scale for large enterprises. But there is also a “friction” problem. The infrastructure for creating new organizations has not kept up with our other technology.
A few years ago, my brother and I wanted to start a small business. Our first step was to try to open a bank account that we could co-fund. To achieve this, we registered a new corporation with the state (paying a few hundred dollars in annual fees) and with the IRS. We needed to aggregate documents about both of us. Only then were we allowed to approach a bank to open a new account. The process took weeks.
Compare this with how we might pool our resources for a business account on-chain. We would create a new shared wallet. We would each deposit money into it.
That’s it.
That’s all that would be involved.
And we were just trying to create a simple, well-understood LLC!
Imagine if we wanted to do something innovative, like, say – organize 17,500 strangers on the internet to buy the Constitution. Good luck explaining that to a bank, let alone getting it together quickly enough that you can raise $45M in a week.
Imagine if we wanted to decide ownership shares in our LLC algorithmically based on contributions of time and capital. Good luck finding a lawyer or accountant who will help you structure that cap table.
Our institutional system is designed to mitigate risk. It is not designed to facilitate experimentation.
Once again - institutional innovators do not need a decentralized database to achieve their visions. What they need is the support of an institutional regime that can meet their needs.
In both cases, our existing institutions have failed to provide that. That creates a gaping hole that a good product solution might solve.
The Product Value of Web3 is Minimum Viable Trust
So we have our users. These are people who need to organize with each other outside of our legacy system.
We have a handful of real problems that they find prohibitive in that system:
I want to invest in private market growth assets.
I want to send money cheaply and discreetly.
I want to steward funds through corruption and instability.
I want to rapidly create new organizations that share funds or assets.
But how does a blockchain or Web3 solve these problems?
After all, these are institutional problems, not technical ones.
Here’s what you need to understand.
The core innovation of Web3 is not technical. It is not a novel product experience.
It is the creation of Minimum Viable Trust.
To send money between two people, to make an investment, or to create a new organization with a shared pool of funds, we need to be able to trust other people.
For thousands of years, our options for guaranteeing trust were three-fold:
Do everything in person so you can keep tabs on everything that’s happening.
Let one person in the group act as the trusted party for the group’s assets.
Let a third party institution act as the trusted custodian for the group’s assets.
The first option works if you have infinite free time and are co-located with your business associates. The second option works well when it’s a friend or family member. The third works if we trust these institutions to act in our interest.
Blockchain provides a fourth option. It creates an open and verifiable record of the world. It creates a transparent set of rules – written in code – of how an agreement works. It provides a way for us to organize and to trust one another without relying on a third party.
It is literally the absolute bare minimum required to trust another person. It creates minimum viable trust. (In some cases, as we’ve seen — that trust is necessary not sufficient.)
That means that Web3 is not a technology in the way that a computer or a car is a technology. It is a technology in the sense that a “contract” is a technology. It is not about enabling novel experiences or efficiency gains. It is about creating a new mechanism for trust. It is about using that mechanism to create economic agreements without seeking permission.
And if that doesn’t seem like a big deal to you, I can only offer you this thought experiment:
Imagine that every time you wanted to create a new group chat you had to ask permission from both the government and a bank. Imagine that they would also supervise all of your dealings moving forward.
You would probably create a lot less group chats. And the ones that you would create would probably be way less interesting.
New Standards, Path Dependency and the Coming Revolution
There’s an important point that was recently made by a mentor, and crypto-skeptic friend of mine. He said:
“Crypto is a social sorting mechanism for collections of people who are willing to try. Those same people might be equally willing to try without crypto. But they wouldn’t be sorted together. It’s the world’s most arcane geek magnet and secret handshake.”
That's important. Because it's not the better technology that wins. It's the one that cultivates the most exciting applications on its platform.
Most people do not care about infrastructure. They do not care if you use MySQL or MongoDB for your database. But they do care about the apps built on these foundations.
Imagine we have two programming languages competing for adoption: Alpha and Beta.
Alpha is old, but trustworthy. It has been battle-tested. It is baked into the systems of governments and banks.
Beta is new and flashy. It incorporates new ideas. It has flaws, but it is iterating rapidly to respond to them. It has attracted massive amounts of capital. It has attracted top talent to build on top of it.
Which language do you think is going to be more important in a decade?
I’m betting on the new language. Because adoption is a function of which ecosystem delivers killer apps faster. For Web3, our applications are not just software. They are communities. They are art projects. They are radical new systems for wealth creation.
There are exciting companies and charities that are being built on our legacy infrastructure. But the truly innovative work is happening on Web3.
The platform is being adopted by optimistic utopians, profit-minded capitalists and creative community builders. These builders are creating the killer companies, networks and economic tools of tomorrow. Path dependence is destiny, and the community builders of tomorrow have already chosen their path.
So, no, dear reader – you may never think to yourself, “Wow, it would be so much easier to buy this house on the blockchain.”
But when you join a community that is buying homes to share together, or when you join a crowdfunded climate activist shareholder campaign, or when you decide it would be really cool to own a piece of an English Soccer Team – that’s when you, too, will depend on the blockchain.
At that point – the question of “Could this be done on a centralized database?” will seem as silly asking if a site was coded in Python or Java.
Now, if you’ll excuse me, I have to go watch some baseball on the internet.