The Web3 movement has yet to take off

If the tech movement known as Web3 represents the internet’s next big gold mine, then why aren’t we hearing more about the truly useful applications that will be built on this new platform.

And why aren’t more developers flocking to it to make their fortunes? Those questions hang in our opinion uncomfortably over Web3 as the boom in crypto assets – which supposedly grease the wheels of the new applications this movement will create – rages on. Something close to 1 trillion dollar has leaked out of the crypto “bubble” since November, but there is still 2 trillion dollar left.

What are the ultimate uses of these digital assets that justify such a large number.

The case for Web3 rests in our opinion on the belief that a new, blockchain-based technology platform will become the foundation for a new class of applications, with digital tokens mediating interactions of all kinds in a so-called “trustless” online world. There will be no digital gatekeepers to set the rules or take the lion’s share of profits. Users will be in control.

So far, though, it is hard to discern mainstream uses for this technology. The main applications – NFTs (non-fungible tokens) and decentralized finance – are founded almost entirely on financial application and regulatory arbitrage. When the speculators take a bath and regulators decide it’s time to close the loopholes, what will be left?

A truism in Silicon Valley has always been that if you want to know where the next big ideas will come from, look to where the capital and the smart developers are going.

In the case of Web3, there’s certainly been no shortage of capital. But relatively few developers have decided to hitch their fortunes to this particular bandwagon.

According to a study by Electric Capital, about 18,000 developers were working actively in the crypto world at the end of last year. To some that might sound a lot but in fact it is nothing next to the 16.4 million working in JavaScript, the main programming language for the current generation of web applications. Even the figure of 18,000 may exaggerate the true picture: the number of people spending at least 10 days a month working on Web3 is less than 5,000 people.

One explanation for this is in our opinion that too few developers have mastered the new languages needed to build decentralized applications. That limits the rate at which Web3 companies can grow, but the problem should ease as more tools are created that make life easier for engineers in this field. But this is only part of the wider upgrade needed to make Web3 technologies more practical. Ethereum, so far the dominant blockchain for running decentralized apps, can handle a maximum of about 30 transactions a second – a bottleneck that has driven up transaction fees. Much of the money pouring into new crypto ventures in recent months has been directed to the infrastructure needed to build and run blockchain-based apps. Yet this revolution has already been years in the making. Ethereum was launched nearly seven years ago. The first wave of Web3 developers drawn to crypto crested in 2018, when Bitcoin first peaked. Only about a fifth of those people are still actively working in the field. The latest wave is nearly twice as big but how many of those developers will keep the faith if another crypto winter sets in?

The delays might matter less if it was clearer what Web3 was actually for.

When the world wide web emerged in the mid-1990s, it was possible to imagine activities of all kinds moving online, from shopping to watching movies. And that was before anyone even dreamt of giant new internet markets such as search and social networking. The case for Web3 in our opinion rests therefore not so much on the “what” as the “how”. Decentralization is itself said to be the draw – the chance to reinvent many of today’s online activities in a new form.

The idealism isn’t likely to last long if the mass of online users doesn’t see some tangible result other than the chance for rampant financial speculation and meme-making. Also, today’s crypto fortunes are concentrated in the hands of relatively few, challenging the idea that this movement will spread wealth more evenly.

The financial conditions that fueled the crypto boom are starting to recede, as inflation takes hold and interest rates start to rise. A similar situation brought an end to the dotcom bubble, laying waste to most of the start-ups, though a handful of truly groundbreaking companies such as Amazon, eBay and Yahoo lived on. So far, it’s hard to see who the Web3 start-ups and survivors will be. Only time will tell…