Lawyers are generally pretty conservative people. It’s our role within society to apply a skeptical view to new things, pay respect to historical precedent, and generally defend the more conservative and established institutions and social norms, i.e. to drag the chain a bit.
For this reason, we have not paid too much attention to the hype surrounding Bitcoin, the Blockchain, and Smart Contracts, let alone ‘NFTs’.
But every now and then a strong and compelling theme breaks through the noise, and things fall into place. This has recently happened to us in the context of what is referred to as the ‘Decentralised Web’ (or DWeb).
Most information about the ‘DWeb’ or ‘Web 3.0’ starts with the technical nuts and bolts, and builds up to the society-changing transformation. Maybe this is to provide a solid foundation before hitting you with some pretty outrageous claims and predictions. But as you’re probably aware, we like to do things differently around here. So we are going to start with a vision of what society could look like if even half of the hype is realised around the DWeb. Spoiler-alert: life with the DWeb aligns pretty closely with our belief in the Rule of Law, individual liberty and autonomy, and broad social inclusion and meaning. This largely explains why the Chinese Communist Party (CCP) has banned crypto mining…
The story to date
One thing we have been banging on about lately is the systematic dismantling of social institutions within the West. There has been a wholesale dismantling of trust in our foundational institutions: such as our government, the church, our health system, our police force, our judges and teachers, our family unit, our sources of energy, currency and banking, and international organisations of cooperation (to name but a few). We are bombarded with news of unending scandals, systemic failures, corruption, and oppression. We accept that there may be some good reasons for this wholesale destruction, but unless we find something to replace these centralised institutions, society will become more and more vulnerable to a genuine reign of tyranny.
The historical alternative to these centralised institutions has been anarchy, closely followed by tyranny. But this time around we may be saved by the DWeb. (We warned you about grandiose claims…)
Web 1.0 was based on a physically distributed network and an associated protocol for the sharing of information (data). These protocols included HTML, HTTP/S, TCP/IP, URIs and DNS. This enabled the sharing of information located on proprietary databases with the open public, (such as academic papers stored on university mainframes, or business information on ‘brochure’ websites). Most of the information flowed only one way, from the ‘Server’ (an institution with a proprietary database) to the ‘Client’ (person with a Browser).
The internet started with such a big promise – to democratise information and set individuals free on their own self-directed and creative journeys. But it has ended up turning us all into serfs, serving at the pleasure of the FANG. Even worse, it has enabled the development of enslaving institutions such as Uber and the Apple App Store, that gain natural monopolies over industries due to ‘network effects‘ on the buy-side, and then take 27.5% (Uber) 30% (Apple) 50%-100% (Google) 100% (Facebook) of the gross revenue (or value) from workers and creators on the sell-side. If an ordinary business tried this they would be pillared and in some countries, jailed.
To be blunt, Web 2.0 has been a failure for our principles of liberty and the Rule of Law. Uber started operating in most countries using a business model that openly flouted existing taxi regulations. Apple, Google, and Facebook are routinely under scrutiny for monopolistic practices and data exploitation. But, perhaps the biggest disappointment of all has been the propensity of modern government to morph into a ‘granter of rights’ and hoarder of secret power, rather than remain a transparent and accountable protector of freedoms.
The problem to date is that something very important has been missing from our internet from its very inception. The original internet protocols were not built with an internal mechanism for organisation and governance, and they were not built for secure value exchange. Given these deficiencies, the internet was always doomed to fail the expectation as a liberating force for the individual. But what we didn’t anticipate was the wholesale invasion of the internet into our daily lives – absent these key foundations.
‘Commerce’ has been shoehorned onto the internet, by adopting the external centralised systems already in place, namely the bank-owned international payment gateways. Governance (or control) has been left in the hands of the institutions that own the centralised proprietary databases, i.e. the FANG and their aggregating associates. Over the top of all this we have overzealous governments vacuuming in personal data about its citizens through forced ‘collaboration’ with these centralised databases, while cutting themselves free from any meaningful and public oversight or accountability.
Distributed trust and distributed value
In short, the ‘DWeb’ (or Web 3.0) is a set of protocols and concepts that bring distributed trust and autonomous value to the network represented by the internet.
The proof of this statement is incontrovertible. Bitcoin, which is based on these new protocols, is currently valued at over US$1.173 TRILLION. That’s US$1,173,000,000,000. This value is currently held completely independently of any traditional government regulation or centralised institutional control. It involves the orderly participation of over 3 billion holders of digital wallets around the world. The daily volume of settled transactions per 24 hours is around US$40 billion. This all began and now subsists on a distributed network of servers with shared access to, and control over, common data. To date, there has been no reported instance of any compromise in the integrity of the blockchain or protocol on which this currency is based (i.e. no one has been able to raid the treasury).
If that does not represent truly distributed and autonomous trust, then we don’t know what does. But Bitcoin is just the household name in the DWeb, and it is only one application, namely a ‘currency’. It makes sense that the first killer-app on the new DWeb protocols would be a currency – because the innovative elements of the protocols are trust and value. These are the two foundational elements you need to create a currency, i.e. a reliable and safe way to store and exchange ‘value’. But with these protocols you also get the potential for so much more. When you introduce a method of participatory governance and distributed trust (as opposed to representative governance and institutional trust), alongside the existing internet protocols, you get something really interesting.
The DWeb started with the elements of distributed databases and has now evolved to include distributed computing (or distributed applications ‘DAPs‘). To put this in context, there is nothing stopping a group of interested people from creating an open-source ‘Uber’ that matches drivers and passengers without a ‘centralised institution’ (al la Uber) owning the passengers’ data and taking 30% of the drivers’ wages, (as well as a centralised bank owning the value transfer elements).
But where the DWeb truly shines is in the realm of the return to personal creativity. When you upload a post to Facebook (or Meta!), it then uses your ‘work’ and your ‘network’, and your friend’s ‘data’ (preferences), to earn revenue from ads. You, the creator of the content and the provider of the data, get no share of the ‘value’ inherent in this interaction. (As an aside, Facebook will say that you get the ‘convenience’ of their app. However, the disproportionate value Facebook is capturing is plainly evident from their financials….) However, in the DWeb, when you create something (such as art) and associate it with a ‘non-fungible token’ (NTF), you retain control of your own value and can exchange it with your friends on the terms you set, or that govern your community. Your personal social networks, and the value created through your own interactions, become owned by the people who comprise them.
Finally, the introduction of distributed governance and trust gives rise to concepts like ‘Smart Contracts‘, being code that takes inputs and then automatically executes outputs, on agreed conditions. You also get ‘Distributed Autonomous Organisations‘ (DAOs), being organisations that can undertake political and business activities without a central authority, (i.e. independent of centralised government and regulation).
None of this is coming. All of these applications on the DWeb (or Web 3.0) are already in play. There are already trillions of dollars worth of value in cryptocurrencies, DApps, NTFs, Smart Contracts and DOAs – and the value and level of participation are literally exploding.
Innovation in the protocol layer
It is not the purpose of this article to explain the core technical components of the DWeb. Suffice to say that the innovations that make this possible are additions to the ‘protocol layer’ of the internet (i.e. the plumbing), rather than any one or more ‘applications’ that run on the web. These elements include:
- Encryption methods, most notably public/private key cryptography;
- Distributed or ‘open’ databases (or ledgers), whereby multiple copies of the same dataset are distributed among a number of nodes within the network;
- Distributed computing protocols, whereby multiple copies of the same code, or fragments of code, are distributed among and run on a number of nodes within the network;
- Token economies, which builds a ‘value’ layer within the network itself, rather than having to rely on an independent ‘proprietary payment network’ (i.e. the banks); and
- Datafication and the internet-of-things (IOT), whereby the network is able to access a real-time and self-verifying stream of data on more and more aspects of life.
You will note that we have not used the concept of ‘blockchain’, which essentially incorporates encryption, ‘proof-of-work’, and distributed ledgers. This is because there is more than one way to embed trust within a network using encryption than a ‘linear’ blockchain.
It is the fact that these innovations are taking place in the ‘plumbing’ of the internet that make this so interesting and full of potential. It is now left to our collective imagination as to what ‘applications’ we build on these framework. It is not just limited to a single cryptocurrency like Bitcoin.
More information of the technology
If you want to delve deeper into the technology underpinning the DWeb, or its potential application, we suggest you start here:
For a good overview of the whole area, listen to Tim Ferriss’ podcast with Simon Dixon and Naval Ravikant:
Chris Dixon and Naval Ravikant — The Wonders of Web3, How to Pick the Right Hill to Climb, Finding the Right Amount of Crypto Regulation, Friends with Benefits, and the Untapped Potential of NFTs (#542)
For an introduction to Smart Contracts, read this:
For information on Decentralised Autonomous Organisations, check this out: