Why we shouldn’t believe all the web3 hype

UPDATE, Nov. 2022: since this article was first published early 2022, FTX, one of the world’s biggest crypto exchanges, collapsed spectacularly, taking $8bn in customers’ money with it; NFTs’ value has plummeted; and Meta has laid off 11,000 people, which *somewhat* questions the validity of investing billions in the metaverse…

The maddening thing about technology — and one of the main reasons I started this blog — is that whenever something new comes along, some people always have to try it. Without thinking about the consequences, impact, or true usefulness of what they’re doing.

The latest incarnation of this perplexing tendency is web3. “The future of the internet”, claim its fans. After the conversational Web 2.0 (essentially, blogs and social media), web3 claims to be decentralised (i.e. not controlled by GAFAM-style gatekeepers, or regulated by the state); more efficient; and financially independent, as web3 experiences (apps, games, services, etc) are to be accessed and paid for in cryptocurrency, which gives access to walled gardens like virtual worlds.

Indeed, “web3” is so sprawling a concept that even Mark Zuckerberg’s smokescreen vision of the metaverse has managed to elbow its way in there.

Not to mention NFTs: this “digital art” format predominantly based on Ethereum (and other cryptocurrencies) has just reached the new-tech tipping point of superstar endorsement, despite irrefutable evidence the currencies behind them consume planet-killing amounts of energy, and that NFTs themselves are a sector so rife with scams, they have their own vocabulary for it (a “rugpull”, for e.g., is when an NFT project’s creators run off with the original funds invested in it).

Is this the future we dreamed of? Or, more concretely, does web3 keep its promises?

1. Is web3 decentralised?

Yes, in the sense that it’s no longer controlled by the usual gatekeepers. Hell, even Zuckerberg has admitted that no one company can ever claim to “own the metaverse”. But in the sense of redistributing wealth? Think again. As Scott Galloway reminds us, 81% of the NFT market is owned by 9% of its users (below).

Bitcoin itself is worse still: 2% of accounts own 95% of its wealth. Yes, crypto is even less representative of society than business’ “old guard” (11% of Fortune 500 CEOs went to Ivy League universities). Or, as Galloway puts it:

The new guard also looks older and more, well, guardian than the old guard… Every member of Forbes’s 2021 cryptobillionaires list is a man. A third of them attended Stanford or Harvard. Out of the 12 listed, only one isn’t white. The web3 narrative feels like a Ted-X talk given to a survivalist group.

Scott Galloway

Furthermore, adds Galloway, the most popular web3 apps rely on centralised apps or services, like Infura, Alchemy or Moralis; not to mention NFT wallets like MetaMask (which, by the way, gets hacked on a daily basis), or OpenSea, the NFT marketplace so big that it’s really the only one that matters. Did you say “decentralised”?

Of late, as The New Republic’s Jacob Silverman points out, platforms like OpenSea or Tether have even stepped in on users’ supposedly decentralised activity. The latter recently “seized $160m on behalf of some unspecified US law enforcement investigation,” Silverman told the Tech Won’t Save Us Podcast; precisely the type of state intervention web3 fanboys pride themselves in being safe from.

Even the self-proclaimed “nerd” admitting to be excited about web3’s potential can’t see what’s centralised about it. Moxie Marlinspike, nerd of nerds as the inventor of Signal, recently said in a widely-lauded critique of web3: “I don’t think it’s on a trajectory to deliver us from centralized platforms, I don’t think it will fundamentally change our relationship to technology, and I think the privacy story is already below par for the internet… but I also understand why nerds like me are excited to build for it.”

2. Is web3 efficient?

In that it cuts out the middleman, i.e. banks, yes. But that’s about it. Crypto transactions, for one, are so slow that one bitcoin sale generates 85,000 times more e-waste than a single Visa transaction. Then there’s NFTs. Largely sold and bought with Ethereum – the cryptocurrency that consumes about a third of the energy of Bitcoin, but that’s still 20-30% of all energy used by all cryptos combined – non-fungible tokens have seen countless artists jump on its money-flashing bandwagon, only to find that selling one NFT uses as much electricity as their studio uses in two years (WIRED).

Not forgetting Bitcoin. The daddy of all cryptos, and still the most valuable of all to this day, uses as much energy as a country like Australia. This is because cryptobros set up banks of super-powered PCs whose only aim in life is to solve the equations required to unlock, or mine, new bitcoins. As most resolution attempts fail, most of this “proof of work” (PoW) activity – and hence energy – is wasted. Not to mention that the ever-accelerating race to mine more coins means ever-more powerful machinery is needed. So the average bitcoin-mining rig is replaced every 1.5 years. You said e-waste?

Surging crypto-related electricity consumption now has global consequences. The Bank of Russia has called for a ban on mining, to preserve energy; countries like Georgia experience repeated power cuts because of said activity; and Kazakhstan had to cut off electricity to crypto miners in January 2022, also to preserve resources (notably because Chinese miners had fled there after their home country’s crypto ban).

Meanwhile, in Texas, the US’ biggest bitcoin-mining factory is currently being built. According to Le Monde, it will use as much energy as half a nuclear power station. Worse: energy deregulation there means crypto miners can obtain as much dirt-cheap energy as they like, and sell what they don’t use, as if they were power companies themselves. Irony of ironies: this situation came about as Texas was keen to position itself as a renewable energy leader! Today, fortunately, crypto miners now have to ask for permission before tapping into the network of Ercot, the state’s main electricity provider, which finally realised said miners *might* be sucking too much energy out of the system…

The crypto community is, of course, aware of these criticisms. That’s largely why the next version of Ethereum will be PoS (proof of stake, a coin-attribution system based on voting, not raw computing power), not PoW. But will it really?

Firstly, ETH inventor Vitalik Butlerin, whilst having always claimed he prefers PoS – as it will allow Ethereum to consume 99% less energy than the current PoW version – constantly pushes back this long-awaited shift, known as “the merge”. As TIME reports, the same day that one of his colleagues claimed Ethereum’s shift to PoS would happen in a few months’ time, Butlerin suggested it might “get delayed until 2025.””

Secondly, will cryptobros really welcome this change? Even Solana, the most valuable PoS cryptocurrency out there, is currently worth 20 times less than Bitcoin. Add to this the fact that PoS coins are minted in a radically different way, with a significantly longer delay in terms of return on investment, it’s not surprising some estimations peg PoS as up to 50-100 times less profitable than PoW. So why change, if money is your n°1 goal?

Yes, there are cryptocurrencies that guzzle less electricity than Bitcoin or Ethereum. Minting an NFT on an energy-efficient crypto like Tezos uses 1.5 million times less energy than on Ethereum, for example. Notably because it’s a PoS crypto. Solana, as we said, is also PoS. But does that make it safe? Think again…

3. Is web3 trustworthy?

As energy-efficient as it may be, Solana was the currency used in one of the biggest NFT heists of late. $30m was lost in just one series of “rug pulls” late 2021, principally via Solana (& involving apes). And herein lies perhaps web3’s biggest Achilles heel: it is literally teeming with scams. To cite just a few more recent examples:

• Cent, the platform that famously sold Jack Dorsey’s first ever tweet for $2.9 million as an NFT, said in February it would halt most transactions, due to the sheer quantity of scam sales, based un unlawful copies, happening on its site. “I think this is a pretty fundamental problem with Web3,” CEO and co-founder Cameron Hejazi told Reuters. More recently, Dorsey’s “1st tweet” NFT was re-valued… at $280 🤷🏼‍♂️
• The biggest NFT marketplace, OpenSea (value: $13.3 billion), openly admitted in January that more than 80% of the NFTs minted for free on its platform were “plagiarized works, fake collections and spam”
• DeviantArt, which hosts more than 500 million pieces of digital art, went as far as to develop its own alert system to detect fraudulous copies of its artists’ work on the Ethereum blockchain. It issued 80,000 alerts since August 2021, reports VICE; then double that October-November; then 300% more still by the end of the year
• No less than 29 rugpulls have been reported in the first three months of 2022 alone, by web3isgoinggreat.com. In January, for example, the creators of the Bored Daddy Ape Club NFT ran off with the €1.2m raised by their last venture… and this was reported to be their third similar scam in a row
• Worldcoin is a $3bn-valued startup which has used a futuristic orb to scan biometric details of 450,000 people to date, mainly in developing countries. Why? Because, according to this MIT Tech Review report, it wants to become the de facto identification system for web3, to allow payments with its own Ethereum-based cryptocurrency. However, as Edward Snowden has pointed out on Twitter, collecting biometric data is never ok, especially that of people who have no idea why they’re being scanned (apart from to earn half a dollar). Hence accusations of “crypto colonialism.” And what about web3’s supposed and hotly-defended anonymity? Conclusion: these scans reek of a scam in the making…
• ApeCoin, the cryptocurrency given as a priority to holders of Bored Ape Club NFTs, is increasingly reported to be a potential scam, as its creators are totally free to decide what privileged owning ApeCoins bring. And in this case, there could well be none at all 🤔

Think this is all exaggeration? What about the fact that a video takedown of NFTs and crypto that lasts 2 hours and 18 minutes got nearly 7 million views on YouTube? Dan Olson, like crypto critics like Stephen Diehl and many more, essentially claims in “Line Goes Up – The Problem With NFTs” that the entire sector is essentially a Ponzi scheme, where whatever’s being sold only has speculative, not intrinsic value. NFTs exist only to “get you to buy more crypto,” says Olson, since the thing they claim to be selling does not actually belong to you. As the hilarious “Dune” book example illustrated so well – an outfit called Spice DAO bought the NFT of a book of Jodorowsky’s infamous adaptation of the sci-fi novel, and mistakenly thought this gave them the rights to make a film based on it – an NFT is nothing more than a receipt, or proof that you’ve bought the right to say something is yours. Or, to put it more simply, remember when the iTunes Store put DRMs on the music you’d purchase and download from it? Well, an NFT is like buying the DRM without the music…

4. Is web3 the next reality?

I’m not sure how long I can answer this question for without getting really angry. But the “metaverse” aspect of web3 is perhaps the most “Emperor’s New Clothes” part of this new equation, in that there’s literally nothing new about it at all. How many times has virtual reality failed to catch on? At least 5 or 6, according to this short history alone. And let’s not forget Facebook bought Oculus Rift EIGHT years ago, and yet Zuckerberg’s dream of us all living in headsets still hasn’t becme a reality.

So what did he do? Rebranded his whole company in honour of “the metaverse”, in the hope we’d stop talking about how damaging his platform is for global democracy, and for teenagers’ mental health. Not only did this gambit pretty much pay off, but now, what was formerly known as “virtual reality” is now called “the metaverse”. And it’s where cryptobros run around trying to sell each other their latest NFT schemes. Like this:

This is the #metaverse… A live rave happening right now in @decentraland for the upcoming @LightbulbmanNFT release by #BjarneMelgaard. Music from @feedelity @prins_thomas @mightbetwins #NFTdrop #rave #virtualevent #NFTCommunity pic.twitter.com/aC4WYRbgH9

— Alex Moss (@alexmoss) January 20, 2022

What’s the name of the magical world in the above video (and our featured image)? Yes, it’s Decentraland 🤦🏻‍♀️

If that’s the future you want for our children, please enjoy web3. If not, please join me in not believing the hype. The kids – and the planet – will thank us later!