The Web3 Movement’s Quest to Build a ‘Can’t Be Evil’ Internet

It is getting late on a Saturday afternoon in Denver when I lean back and take in the full strangeness of what I am doing. I'm sitting at a table against a wall in a windowless room with a Discord server on my laptop. I have spent a lot of time hacking together a project with a trio of developers, and there are mounds of pizza crusts and empty potato chip bags around me. I am a journalist with a law degree. I got swept up in creating my own DAO, a favorite concept of the Web3 crowd, and it is supposed to launch tomorrow.

You have questions. What happened to me? Three days ago, I was not a big fan of ether. I'm talking in complete sentences about multisig treasuries. I dropped $85 for a domain on the ether name service despite having no use for it, because the devs almost integrated our site with non- MetaMask wallet. I seem to have caught the same thrill, however fleetingly, as everyone around me.

The estimated 10,000 people who arrived in Colorado a few days ago for the biggest and oldest event in the world of Web3 are me. Many of these people came here to be with their people. I came to understand them. I believe I finally do.

The term Web3 emerged from obscurity last year, thanks to risingcryptocurrencies prices and some canny marketing by venture capitalists. It's hard to pin down its meaning. Web3 has become a catchall for anything having to do with cryptocurrencies, such as people paying tens of thousands of dollars for digital collectibles, with neither practical nor aesthetic value, then flipping them. The celebrities were at the Super Bowl. A parade of frauds and hacks.

To a core of true believers, Web3 is not the same as the flashing-neon casino. Web3 is about decentralizing everything. Its mission is to free humanity from Big Tech domination but also from exploitative capitalism itself and to do it through code.

Digital money can be sent and received without the need for a bank to approve transactions. A set of carefully designed incentives would keep everyone acting in the best interests of all users. Web3 wants to apply decentralization and game theory to all of digital life. The main goal is to create a new kind of digital infrastructure, one that developers can use to build apps and run on it.

If anarcho-capitalists want to dethrone the central bankers, the culture around Ethereum and Web3 has a more progressive bent. After walking into the Denver Sports Castle, a massive former sporting goods store turned events space that served as the main venue of the ETHDenver, I caught the first panel about using the technology to build public goods. The spirit of collaborative, LARPish make-believe was embraced by ETHDenver, and there was a lot of talk about the NFT mascot, the cartoon buffalo-unicorn hybrid. The strength of the buffalo was fused with the magic of the unicorn. The universal greeting was "good morning", regardless of the time of day.

The conference organizers emphasized that Web3 is not about money. In all internet culture, typos are a rich source of meme.

What were they doing? It's easy to find technology experts who think Web3 is nonsense. It's easy to find people who think it's the best chance of redemption.

The venue's plumbing wasn't ready for so many people. There is a similar problem with ether.

One way to think about Web3 is that it is the successor to Web 2.0, the era that was supposed to democratize the internet but instead became dominated by a handful of huge platforms. Web3 is about centralizing the web.

The internet was designed to be free. A network of computers spread around the country couldn't be wiped out in a single nuclear blast. The spirit of John Gilmore's famous 1993 dictum, "The Net interprets censorship as damage and routes around it," is captured in this distributed structure.

The dream of decentralization waned as the 1990s wore on. The typical internet user was not allowed to create web pages and was only allowed to view those created by others. As a mature economy developed around the internet, powerful companies began to centralize on top of its open protocols, like Microsoft did with Internet Explorer. The dotcom crash raised questions about whether the internet would ever fulfill its potential.

New platforms and technologies in the mid-2000s allowed ordinary users to create and upload content that could reach thousands or even millions of people. The mass would be the creators of passively consuming media if Web 1.0 saw it. Time captured the spirit of the moment with its 2006 Person of the Year selection.

There was something different beneath the surface. The platforms were the bosses of user-generated content. The big winners slurped up user data and used it to build their businesses. Meta owns three of the four largest social apps in the world. 90 percent of all internet searches are done by _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ As these companies conquered more and more of the web, it became clear that the user was less creative than a source of raw material. It is difficult to escape. Meta controls access to your social media accounts. Are you looking for a streaming alternative to YouTube? You can take your followers with you. You have little recourse if a platform suspends or cancels your account.

There are many reasons why Web 2.0 failed to deliver on its promise. Network effects. Big data has unforeseen power. Corporate greed. These have not gone away. We should not expect anything new from Web3. The answer is simple for believers.

The term Web3 was created by an English computer scientist in the year of the launch of Ethereum. He first called it Web 3.0, but the decimal thing has changed. Web 2.0's fatal flaw was trust. As they grew, everyone had to trust the biggest platforms not to abuse their power. The motto "Don't be evil" implied that being evil was an option. Web3 is about building systems that don't rely on trusting people, corporations, or governments to make moral choices, but that instead make evil choices impossible. The technology for making that happen is called cription. The creator of the Internet Archive and the Wayback Machine has described this goal as locking the web open.

A database that lives on a network of computers rather than on a single server is called a blockchain. No one person or organization has ownership of it. No one can control or destroy the network without first taking over a majority of the computers in the network. This makes it impossible for anyone to change the database. All the world can see is the log on the chain. There isn't a central authority that can enforce the rules.

How is the web supposed to be locked up? Right now, platforms like TikTok andInstagram own the data that you generate while using them, and make it hard or impossible to get it back. The theory is that in a Web3 world, your data would live on a ledger, not a central server. Instead of platforms owning it, you would control access through a private key. If you were tired of one service, you could switch to another. The platform couldn't change the rules of the game by building walls around its data because it wouldn't have owned the data in the first place.

Web3 startup are trying to apply this theory by creating alternatives to popular platforms such as Facebook,Snapchat, and more. Frank McCourt, a liberal billionaire, has pledged $25 million to develop a protocol for putting your social graph, the interlocking map of relationships that you have built up over the years, but that is probably owned by Facebook. The company claims to be building an entire Web3 metaverse.

Web3's first principle is that of faith in the infrastructure of the internet. We will get to those later. The infrastructure is creaking.

The toilets broke on the second day. The plumbing at the Sports Castle was not ready for the number of people. There is a similar problem with ether. The Sports Castle can't handle the load of transactions that go through its pipes.

The Proof of Work system is used in the network of ether and is used to solve complex math problems. The higher the demand, the higher the gas fee. Gas fees are often high because of the popularity of ether. They topped $55 per transaction late last year. The math problems require a lot of electricity. If the world's countries were ranked by energy consumption, Italy and the United Kingdom would be in between. Web3 proponents are torn up at the thought of contributing to the climate crisis.

Every third person was working on a fix for the issues. After years of delay, the core developers are about to launch a more eco-friendly proof of stake alternative. The environmental costs and gas fees of Ethereum are not incurred by competing blockchains that don't use proof of work. There is a layer 2 that does most of the work on their own network before logging the results on Ethereum to lower the cost per transaction.

The technology is too difficult to use and there was broad agreement among the crowd. Doing anything in Web3 is very confusing. When I checked in at the hotel, I needed help to redeem my lunch token. If you want to get anything done and aren't a programmer, you end up just clicking on a bunch of questions that you don't understand. This is a good way to get ripped off. The leading NFT marketplace, OpenSea, was hit by a phish during the conference. Almost $2 million worth of NFTs would be stolen. The news hardly raised eyebrows because these episodes are so common.

It was designed to not do centralized, but user-unfriendliness puts tremendous pressure on the whole system. The creator of the open source messaging app Signal, Moxie Marlinspike, wrote an article in January about Web3's lies on his personal website. According to Marlinspike, centralized services always end up imposing themselves on top of decentralization because most people crave convenience. Some people thought in the early days of Web 1.0 that they would have their own website and mail server. People don't want to run their own server.

This pattern is already being repeated in Web3. It's not easy to interact with a blockchain with an app on your phone. Almost all Web3 apps rely on one of the two companies to do that. Most people use a digital wallet to store their assets. Almost every Web3 product relies on a middleman to tell them what's happening. A system designed to make trust obsolete has a lot of trust.

The situation is even more centralized because one company owns both MetaMask and Infura. Any Web3 app you might use probably relies on these centralized services to access your data, even though it lives indelibly on the blockchain. When a satirical NFT was pulled from OpenSea, it also stopped appearing in his MetaMask wallet, even though it still existed on the blockchain.

It took Vitalik Buterin just one day to prove his point. Buterin wrote that many of the points made by Marlinspike are correct, but they are missing something.

A small group of people within the Web3 fold believe that the true message of decentralization is being held back by a medium that is getting more attention than it deserves. Johnson helped code a peer-to-peer alternative to the hypertext transfer protocol. Content can't disappear from the web just because a URL changes. It is a leading example of decentralization.

There are a lot of things that people try to do with the technology. That is so dumb!

Johnson is worried that the technology has become a sexual object. I wondered if the same could be said of decentralization itself. The biggest barriers to decentralizing power may not be technological.

The system is pushed to centralize by the user-unfriendliness of it.

There is a vague term for centralization. One of the original aims of the coin was to remove banks from financial transactions. It's appeal among libertarians, criminals, and recently Russian oligarchs. One way to think about centralization is that a bank sits at the center of a transaction. How many options do you have? Is there a single player in the market? The banking industry is pretty centralized. There are thousands of banks in the US.

Decentralized technology doesn't guarantee a market. Take email. Email is a protocol. In theory, anyone can set up their own email server, but very few people do. People use email clients and the market has centralized around a few providers. The person on the other end of every second email you send probably uses it, even if you don't, because a copy of your email lives on the server.

consolidation is a better word than centralized. Market consolidation is a feature not of technology. There is an older protocol for dealing with consolidated markets. It is called antitrust law. Government policy is not included in the Web3 blueprint.

One of the panelists, Nick Dodson, an engineer at Fuel Labs, observed at one point that traditional financial services were not central to the discussion.

I asked if you knew that the fintech sector owes a lot to federal legislation. The 2010 Dodd-Frank Act requires US banks to let customers access their account data in a format that can be read by computer applications. It's thanks to that provision that you can sync up your data with personal finance apps. On the back of this observation, I turned to one of the other panelists, and he was an accomplished blockchain programmer. I asked if a simpler path to decentralization could be found if Congress passed laws mandating data portability and interoperability. Wouldn't it be easier to iron out the quirks in this tech?

Is it possible you could ask that question again? Pangilinan apologized with the half-smile of someone unsure if their leg is being pulled. I did it again. Wouldn't it be easier to have a data portability law?

She said that government moves way slower than software does.

The dominant view within the Web3 movement was taken by Pangilinan. Her skepticism is understandable. The internet economy came about during a period of deregulation. The US government has yet to prove it can pass a law regulating Silicon Valley or win a lawsuit against a platform giant. Congress is an archaic system.

Law is the most effective technology ever devised for preventing people and corporations from abusing their power and forcing them to share it. There is a history of government intervention in the tech sector. This comes through legal battles. In the 1950s, antitrust pressure from the federal government forced AT&T and its Bell Labs subsidiary to license out thousands of patents, including one for a little thing called the transistor. The government's role in decentralizing markets is not always visible. Americans get to keep their cell phone numbers when they switch carriers thanks to a Federal Communications Commission regulation.

Even members of the progressive Web3 community have zero interest in influencing public policy. They think that government is the problem being designed around, that it is just another institution that demands our trust without earning it.

I chatted with Lane Rettig, a former ethereum core developer, backstage. He was candid about the flaws of Web3. He agreed with Pangilinan about the futility of government regulation. Spacemesh is a project that Rettig is working on. The Spacemesh network can be distributed among millions of participants, rather than tens of thousands, because anyone can mine Spacemesh with spare processing power on their laptop or phone.

I pulled out my phone. Is it possible to download it right now? No, Rettig said; unfortunately, Space was not available on phones yet. Even if the mobile app had been built, it wouldn't be allowed in the App Store. I joked that the Open App Markets Act, a bill that has bipartisan support in Congress, would force Apple to permit downloads of apps not offered in its App Store.

He said excitedly, "That's a bill?" I can see the implications.

It's not right to say that people in the space are not interested in regulation. The amount of money spent on lobbying has increased. The goal of this effort is not to use regulation to achieve the goals of the markets. It's mostly about making sure the state stays out of the way of new regulations that might stop the gravy train.

The gravy train has a name. Decentralized finance is a market that allows investors to gamble on Cryptocurrencies via options, derivatives, and other avenues. yield farming is a type of farming in which you lend out yourcryptocurrencies in exchange for interest payments. It is a big business. The conference may have been high-minded, but it was mostly funded by DeFi companies. Most of the most popular ethereum apps are on the Defi platform. These are largely unregulated. The bank doesn't have to pay you back if someone stole your money because there is no bank. This is not an unimportant concern. More than $10 billion was stolen from DeFi platforms in one analysis.

On my first night in Denver, I headed to a happy hour sponsored by a company that claims to be a fast, flexible, and secure way to create financial products. Arisa told me that she was launching a startup called Cega. She said that Cega will allow people to invest in exoticcryptocurrencies and generate healthy returns. She told me that it will be nearly impossible to lose money if the market drops more than 50 percent.

How is this possible?

I used to do this at investment banks. She said that the DeFi derivatives market exploded in the back half of 2021. To build advanced statistical models of markets, you need a team of quants. This was supposed to be reassuring. If the parallels to the eve of the 2008 financial crisis were too subtle, my next stop was a performance by the Dutch DJ Tiësto that was hosted by the startup bacon coin.

Many of the Web3 true believers viewed DeFi with disdain as it dominated the sponsorships and party calendar. The official conference map labeled the rows of tables where the companies pitched their wares as the "Shill Zone". I overheard two guys sitting at a table outside of a coffee shop. He recently told Time that if we don't exercise our voice, the only things that get built are the things that are immediately profitable.

There is a contradiction. The fact that money is the driving force of what they are trying to build is not a new one. This is where the game theory and other higher tenets of Web3 come in. It breaks with the economic innocence of past waves of internet utopianism.

If the parallels to the eve of the 2008 financial crisis were too subtle, my next stop was a startup that offers mortgage-backedcryptocurrencies.

Back in the early days of Web 2.0, the open source movement was guided by a naive belief in the willingness of people to volunteer their talents for the greater good. Linux die-hards believed software should be free. The platforms born in this era played to that spirit, with lofty rhetoric about making the world a better, more open, more connected place, while quietly setting up global surveillance operations to spy on their users for the benefit of advertisers.

A lot of open-web, open source people always thought that money was dirty, according to a veteran of the open source movement. By making it explicit, we're making it harder for people who want to take it from everyone else.

Web3's approach to financial incentives is an ingenious way to solve the adoption problem of new technology. Let's say you make a new platform that works so well that people can use it without a PhD in cryptography. Everything is open source and users control their own data. Ordinary users probably don't care much about data ownership or public ledgers. They want to be where their friends are and have fun. How do you get people to use your app?

tokenomics is the answer. The business model of nearly every proposed Web3 platform involves incentivizing everyone involved to use and improve the platform in order to make the value of the token go up. The concept of aligning the incentives was created by the creator of the digital currency, Satoshi Nakamoto. Everyone could be incentivized to act for the good of the community. If someone took control of enough of the network to be able to alter its history, they would have a powerful reason not to: It would kill confidence in the network and crater the value of their own holdings.

Many people think that cryptocurrencies are pyramid schemes since their value is dependent on who wants to buy in. In the real world, tokenomics can serve a useful purpose. Presearch is a Web3 search engine. Anyone can set up a virtual private server or a computer with Presearch on it. A range of sources are queried before a response is returned. People who run nodes are rewarded with a custom coin. Users can be rewarded with tiny micropayments for doing searches. The platform should become more valuable as it gets more popular. Advertisers have to buy token in order to appear above search results. Will this work? Maybe not. It is not a Ponzi scheme.

Web3 apps promise to give users a say in how the platforms are run. In the case of Presearch, the PRE token will give ownership and some kind of governance power over the platform. Colin Pape, the founder of Presearch, says that the distributed structure should prevent anyone from pushing Presearch in exploitative directions.

That seems plausible in the abstract, but it raises a lot of practical questions. How can you keep someone from buying too much? How do you know if the accounts are for humans or animals? How will you act quickly enough to compete with traditional businesses that don't have to put every single decision to a vote?

None of that governance stuff actually exists yet, so the answers are speculative. Decentralized control is still an aspiration for Presearch. The reality is that the company, meaning Pape, is in charge of the search engine. This is a theme in the Web3 world. Everyone has a white paper spelling out how their new platform will be governed by the community, eventually, at some future point yet to be determined, once a whole bunch of other issues are sorted out. Give me control, but not yet.

The highest tenets of Web3 are even more ambitious if the vision of collectively run mega-platforms sounds far out. Is there a way to get people to buy into a set of apps? That is just the beginning. The goal is to use cryptocurrencies to lock humans into a more cooperative, less self-destructive society. I met Kevin Owocki and fully understood this.

Owocki is trying to turn the idealism of Web3 into reality. Owocki is a resident of Boulder County, near Denver, and is the founder of GitCoin, a platform for funding open source Web3 projects that has raised and distributed $60 million so far. He had long hair past his shoulders, a trim beard, and an athletic build. When I said I was thirsty, he handed me a can of kombucha from his back pocket.

Owocki was a rock star at the conference. He was credited with coining the term BUIDL. He sold out of his 400 copies of his book, GreenPilled: HowCrypto Can Regenerate the World, after admirers approached him nonstop to talk, express their support, or ask for a copy. Owocki is a long way from a casino person. Owocki told the crowd that since research shows money stops increasing happiness after about $100,000 in annual income, Web3 founders should give their excess money to public goods that everyone gets to enjoy. I'm more solarpunk, which is, how do we solve our contemporary problems around sustainable economic systems? It is a different set of values.

He said that the internet made it possible to move information between computers. This made communication more efficient. It is possible to move units of value between computers. Owocki believes this can be used to change how humans interact. The goal is to break free from the patterns of capitalism. Climate change, misinformation, and an underfunded digital infrastructure are some of the collective action problems that Owocki believes can be solved by the right cryptoeconomic structure.

A decentralized organization is the key to achieving this. The ancient Chinese word for the way of the universe is pronounced the same as the name of the coin. Members join by buying a custom token from the DAO. That gives them an ownership stake in the DAO. Member-owners vote on what the DAO does, which is mostly to say what it spends money on, since a blockchain-based entity can do little besides move funds from one address to another.

The young concept has a checkered past. The first DAO collapsed in 2016 after someone exploited a loophole in its code to steal $50 million. Colorful failures have followed. The attendees of the ETHDenver conference talked about their world-changing potential. Kimbal Musk spoke about his Big Green DAO, a charity. He said that giving away money via a DAO got rid of the painful bureaucracy of philanthropic nonprofits.

What is it about a DAO that doesn't involve the collective action problems that threaten to doom the species? According to Owocki, it is the ability to write code in ways that tinker with incentive structures. He writes in GreenPilled that the weapon of choice is novel mechanism designs, based upon sound game theory, deployed to dairies as transparent open source code. The book has a lot to say about various game theory concepts, but it has very little to say about technology. Public goods are non-rivalrous and are the sort of thing you learn in an undergrad econ class.

It's difficult for me to understand how a DAO works. I create one while I'm in Denver.

Owocki says that one of the most powerful incentive design techniques is called quadratic voting. The back of Owocki's purple baseball jacket said "Quadratic Lands" as he stood near the edge of the Shill Zone.

A budget is given to allocate among various options in a voting system. Let's say it's dollars, though it could be any unit. The more money you spend on a particular choice, the more you vote for it. The marginal dollar you pledge to the same choice is worth less than the previous one. The cost of your vote rises quadratically, rather than linearly. It is harder for the richest people in a group to win the vote. The money is given to Web3 projects. The amount of people who contribute to a project is more important than the number of people who contribute. This rewards ideas that are supported by the most people.

Owocki is more cautious than Glen Weyl about the applicability of the voting system. He has positioned himself as a sort of insider critic of the movement, one who supports its broad goals of decentralization.

Weyl showed me the weaknesses of using voting in a DAO. A major problem is that one person can create a thousand puppet accounts and use them to take over the voting. Even if you come up with a solution to the proof-of-AD;identity problem so that it is hard to make duplicate accounts, someone could just get people in the analog world to create accounts on their behalf. Imagine if the Chinese government wanted to take over a DAO. All it would have to do is tell its citizens to take control of their money.

Owocki believes that he and his co-revolutionaries can fix these problems. He asked if I had heard of the Matthew Effect, which is how economists refer to the fact that the rich tend to get richer. What if you could build an economic system that upended the Matthew Effect? It's called quadratic voting.

All of this is making me very excited. It is hard enough for me to grasp how a DAO is supposed to work. I decided to create one while I was in Denver.

Jacks works for a nonprofit called the Learning Economy Foundation that is researching the use of the internet in education. At the conference, he agrees to help with the creation of the DAO. The New Yorker magazine has a weekly cartoon caption contest in which readers compete to provide the funniest punch line to a captionless cartoon. Each week, the members of the DAO will vote on each other's submissions and submit the internal winner to the actual contest. We call it LMAoDAO.

I put in a lot of time on the DAO over the weekend, but not as much as Jack and his coworkers, who actually know how to program and generously volunteer time to build it, and whom I half-jokingly start referring to as. BUIDLers are officially hacking together a Web3 application in the spirit of ETHDenver. When I explain what I'm doing, the people at the conference are very supportive. I thought they might take exception to a journalist creating a DAO as a stunt, but the general sense is that we have come up with a clever idea.

Coder can feel good about working in tech in Web3

As we create the DAO, there are two things that are clear. In our case, a custom LMAO coin that we mint out of thin air is what a DAO is. Like most DAOs, ours is organized on a Web 2.0 application. We control the Discord, Jacks controls the voting website, and I manually submit the caption to NewYorker.com. We have committed in principle to building out decentralization, but who knows when that will happen? Everyone has to trust that we are doing what we say we are.

The second thing is that BUIDLing is fun. A video game is similar to setting up a DAO. Incentives and rules are needed to keep people playing. Web3 is an alternate reality with its own rules, customs, and language, which makes it feel like a game within a game. If you play for long enough, you won't have to check the instructions. It starts to make sense to use all kinds of jargon. Go from the mainnet to the Gnosis chain to claim your token. You can get access to the locked Discord channels if you sync your token with the collab.land bot.

Problem-solving is the real fun of BUIDLing. How will we get people to join? Nathan came up with an idea that he could use to find people who attended the conference, if he could find a wallet that held either a meal token or a NFT. We can use our custom token to everyone on that list. This all takes place in a closed system. Most of these decisions don't require us to think about the messy world outside of our DAO. It helps me understand the draw of Web3. The sense of moral pride that used to accompany working in Web 2.0 is hard to find now. Coders and technologists can feel good about working in tech again, if they rediscover the joy of hacking in Web3. Jacks tells me that Web3 is part of his appeal. The escape hatch may lead to a real place or a fantasyland.

I realize that it's Saturday evening and dinnertime is approaching as the pizza and snack bags pile up. There is a rumor that Death Row Records is going to be turned into an NFT music label by the man who recently announced his intention to do so. Dave lives in Denver and I have plans to meet him.

As Dave and I catch up over food, I feel a bit crazed, trying to explain what I've been up to. I'm a bit like the character from Oz. Gradually, talk turns to normal stuff: his family, my job, a trip we have been planning. I sleep in Dave's basement that night and on Sunday morning he wakes me up with his 2-year-old daughter. The guys at the conference seem to think they are building a better world for her, but in the morning it's hard to take seriously the idea that her future depends on precisely calibrating a bunch of incentives. It all feels like a game that I have stopped playing.

The phone buzzes. Before the DAO can officially launch, my services are needed. I plug myself back in.

The images are from CGTrader and Shutterstock.

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