This is a continuation of the Future Friday series on Web 3.
Decentralization is the foundational concept of Web 3. Much has already been written on the topic. This article is a collection of quotes and articles that has helped to shape my understanding.
Today, all of our interactions and transactions are done through centralized services like Google, Facebook, Amazon and the like. These companies provide the convenience of services like social networking and search. In exchange, they collect for user data which is then used to sell hyper targeted advertising or other purposes. There is an implict trust placed on these services, and the negative second order effects of this is starting to play out in various ways socially and politically.
Decentralization means that there is no longer the need for an intermediary party required to conduct a verifiable digital transaction or interaction - a fundamental building block for internet services.
This shift from the current state of the internet to a potential decentralized future is described in Making Sense of Web 3:
The internet has gone through major generational shifts before. These expanded the performance, features, and scale of the internet. We went from plaintext websites to streaming video. We went from static web pages to full-featured applications served remotely through the browser. We went from listservs to global social networks that drive modern politics and culture. As the web matured, we grew to rely more and more on a handful of large companies. Google built the fastest and most convenient search engine, and have been rewarded with control over 74% of all search traffic. Facebook built the most popular social network, and was rewarded with control over the online identities of 2.2 billion people.
Web 3 is different from previous generational shifts. At its core, web 3 isn’t about speed, performance, or convenience. In fact, many web 3 applications are, at least today, slower and less convenient than existing products.
Instead, web 3 is about power. It’s about who has control over the technologies and applications that we use every day. It’s about breaking the dynamic that has shaped the last decade of the web: the tradeoff between convenience and control. We’ve become so accustomed to this dynamic that it seems inevitable: of course using the internet means being surveilled, and of course having a social media account means having my personal data sold to advertisers or worse. How could it be any other way?
Web 3 rejects the premise. We can have the benefits of the internet without handing the majority of power to a minority of companies. The dynamic described above isn’t an iron law of the universe, it’s just a product of the technology available at the time and the choices we made along the way.
The fundamental innovation that enables decentralization is the Blockchain - it is a open, distributed database in the form of a ledger. From Bitcoin as Protocol:
The bitcoin ledger is the so-called blockchain which, uses the fact that there are many copies of it that are broadly distributed combined with a fair bit of math to ensure that once a transaction has been recorded in the blockchain that transaction can not be changed after the fact. There is no other widely used protocol in the world today that accomplishes this: with bitcoin anyone can make a statement (a transaction) and have this be recorded in a globally visible and fixed ledger.
This is a big deal, because what the Internet today is missing the the ability to hold and transfer state at the protocol level, as articulated in Understanding Web 3 - A User Controlled Internet:
Today’s world wide web, or the internet, has two key missing properties: It doesn’t hold “state”, independent of trusted operators [and] it doesn’t have a native mechanism to transfer state. Lack of state is a result of the simplicity of the protocols that the web is built on, such as HTTP and SMTP. At any moment, if you were to query a node (a device connected to the internet) about its history or current state, it has no idea. From a user’s perspective, this would be like using the internet for the first time from a new browser (no history, favorites, saved settings or auto-complete), every time you use anything connected to the internet.
The functions of holding and transferring state are provided by the application layer of the internet today, and have tremendous value. Because of the Blockchain, the protocol layer can hold and transfer state, giving the protocol layer value where it didn’t exist before. For the internet, HTTP and underlying protocols don’t have value. The applications built on top of it, however, went on to create the most profitable companies in the world.
This article entitled Fat Protocols describes the relationship between the value of the Protocol layer and Application layer:
Here’s one way to think about the differences between the Internet and the Blockchain. The previous generation of shared protocols (TCP/IP, HTTP, SMTP, etc.) produced immeasurable amounts of value, but most of it got captured and re-aggregated on top at the applications layer, largely in the form of data (think Google, Facebook and so on). The Internet stack, in terms of how value is distributed, is composed of “thin” protocols and “fat” applications. As the market developed, we learned that investing in applications produced high returns whereas investing directly in protocol technologies generally produced low returns.
This relationship between protocols and applications is reversed in the blockchain application stack. Value concentrates at the shared protocol layer and only a fraction of that value is distributed along at the applications layer. It’s a stack with “fat” protocols and “thin” applications.
With this fundamental shift comes groundreaking changes in incentives to develop internet services. From Why Decentralization Matters:
Early internet protocols were technical specifications created by working groups or non-profit organizations that relied on the alignment of interests in the internet community to gain adoption. This method worked well during the very early stages of the internet but since the early 1990s very few new protocols have gained widespread adoption. Cryptonetworks fix these problems by providing economics incentives to developers, maintainers, and other network participants in the form of tokens.
I’ll explore these economic incentives further in next week’s Future Friday Web 3 series, Tokens.