Autor Cointelegraph By Max Parasol

DAO: Decentralized. Autonomous. Organization.“The whole phrase is a misnomer. They’re not decentralized, not autonomous and they are not organizations,” Monsterplay blockchain consultancy founder David Freuden tells Magazine.Freuden co-authored a 51-page report on DAOs in May 2020 in an attempt to help realize their potential. “We need DAOs,” he explains. “The idea of ‘shareholder first’ is only a 1980s/1990s concept. Companies became about profits, not products.”He foresaw big things for DAOs and much has changed nearly two years later. By the end of 2021, DAOs had more than 1.6 million participants, up from just 13,000 at the start of the previous year. In 2021, the US state of Wyoming legislated for legal recognition of DAOs and the Marshall Islands. In 2022, Australia is considering doing the same.Yeah, but what is a DAO?In short, a DAO is a governance model popularized in the decentralized finance sector where members buy (or are rewarded with) governance tokens to vote on how the DAO operates and spends its money. “DAOs were born from DeFi as an investment vehicle. So, you can’t separate a DAO from tokenomics,” says Freuden.DAOs are usually built around a mission which can be a promise or a social cause but usually still involves a desire for profits. “If you can’t answer the why the DAO won’t be sustainable,” he says. And, “if you don’t have tokenomics, it’s a co-op, not a DAO.” DAOs come in a range of types that now include operating system DAOs, protocol DAOs, investment DAOs, grant DAOs, service DAOs, social DAOs, collector DAOs and media DAOs. The idea that people could be galvanized around a good cause was very attractive to Freuden. The crypto world comprises “speculators or builders,” so “crypto needs a DAO for the builders.”But, one problem is that mismatched expectations among speculators and builders — or both — cause endless but, sometimes creative, friction.How do you DAO?Productivity coordination organismsFor DAOs, the idea is usually to launch the DAO with an original product, such as a cryptocurrency, an IT protocol or a VC-like investment fund like FlamingoDAO. DAOs allow for tokenized and incentivized distributed open-source contributions without borders. Product or mission is key. Sometimes, this happens in reverse and DAOs emerge once a product is launched, leaving the company to eventually transition to a DAO, like Uniswap eventually did.A well-coordinated DAO can get things done. So, it’s a vehicle for a distributed incentivized workforce. Essentially, DAOs are something like productivity coordination organisms.DAOs incentivize merit-based contributions. Those who “work for the DAO make permissionless contributions and enjoy fragmented employment benefiting from task descriptions, not job descriptions,” argues Freuden. So, DAOs are, above all else, a new way of organizing cooperation.DAO? Distributed not decentralizedIn decentralized autonomous organizations, each word can be interpreted differently. DAOs can emphasize one aspect or at the expense of another. Decentralization is a trade-off for autonomy and vice-versa.Matan Field, CEO at DAOstack, has long argued that a DAO is a distributed governance system. Power is distributed collectively. Yet, the decentralized aspects of a DAO can be understood by two different factors. This sheds light on the conflicting definitions of a DAO.A DAO can be decentralized because it runs on a decentralized infrastructure. For example, it could be created on a public permissionless blockchain so that another party cannot take over. A DAO is distributed because it’s not organized hierarchically around executives or shareholders. There is no concentration of power around its leadership.Option two is clearly distributed rather than decentralized.Yet, not all of these endeavors are “automated.”Autonomous: Think quorum, not robotThink of a quorum rather than a robot. DAOs can be autonomous in the sense that the most profound characteristics of a smart contract are self-enforcing and self-executory capabilities. Thus, every transaction on a blockchain is technically a simplified version of a smart contract.The DAO landscape is growing more complicated.For example, keep in mind how smart contracts work on the Ethereum network. They are less like legal contracts and more like lines of self-executing computer code described as “persistent scripts” by Vitalik Buterin.A DAO, however, is autonomous in the sense that its rules are self-enforced once agreed upon by its members. So, a DAO is not fully automated but “automated upon approval by the governance committee.” This can differentiate them from traditional organizations whose rules form guidelines that someone must interpret and apply.Why a DAO? They move fastA DAO can adapt quickly to local conditions as a quick way to spin up a governance mechanism. It’s a knowledge coordination tool to make decisions collectively and fast.  Like UkraineDAO, spun up rapidly by Ukrainian expat Alona Shevchenko, Nadya Tolokonnikova, founder of Russian feminist punk band Pussy Riot, artist Trippy Labs and digital artist collective PleasrDAO, in response to Putin’s invasion of Ukraine. The DAO quickly sought to support Ukrainian charities by selling NFTs of the Ukrainian flag. This is the perfect use case for a DAO: a single mission, moving fast and raising funds for a country accepting crypto where trust in banks is low. This could be a watershed moment for DAOs.Since receving 1st donation 68 hrs ago, @Ukraine_DAO raised $4MM.#KPIs$63K USD per hour.$1,000 USD per minute.2,115 ppl in party bid#Alpha Frens, this is ur alpha! ?? And ur investment ? has instant return in Karma. #??NOT INVESTMENT ADVICE.Common sense advice. pic.twitter.com/OtkKEsmVvG— CryptoStΞvΞ | UkraineDAO | PleasrDAO (??,✨)ᵐᶠᵉʳ (@DefiHope) February 28, 2022For Freuden, like many, ConstitutionDAO was another clever use case for DAOs. ConstitutionDAO was an ultimately unsuccessful but “beautiful experiment in a single-purpose DAO” to buy a copy of the U.S. Constitution for public viewing from a Sotheby’s auction. ConstitutionDAO raised $47 million dollars from 19,000 people in just one week in November 2021, but was outbid by a hedge fund manager. Contributions were returned or lost if transactional gas fees were too high. Yet, as a “beautiful experiment,” a Special Vehicle DAO like the ConstitutionDAO proved exceptionally fast at organizing and crowdsourcing funds for a specific purpose. Soon, we may all be lauding the success of UkraineDAO‘s geopolitical ambitions in support of the DAO concept. For Adam Miller, founder of DAOplatform.io and MIDAO Directory Services, some of the best use cases for DAOs today are where a DAO structure is part of the raison d’être.That is, a “flat community is key to the venture.” A good example is crowdsourced product development. Miller tells Magazine that DAOs are most likely to succeed when members are excited about a DAO as an alternative to starting a company. He agrees that “distributed is better for the acronym” because DAOs “still need some kind of hierarchy.”For Miller, DAOs are also a “new way of organizing people and, importantly, resources.” He started DAOplatform.io, a DAO tooling advisery that is currently transitioning to a DAO due to the “woeful tech options for running a DAO,” which he says mainly comprises of just “multisig admin keys and a voting system.” So, today, he is trying to advise on the best tech stacks for DAOs. There are three key elements, according to Miller. “Firstly, tokenization for which there are many methods and tools. Secondly, governance mechanisms, on chain or off chain, and connected to the DAO’s treasury. And, finally, community.” How a typical DAO works…DAOs can become more than just a glorified Discord group — but only if there’s a clear mission. That mission is inevitably part financial speculation part utopian dream. The spectrum can vary greatly.The Dash DAO was created because the founder left the cryptocurrency project in 2017. It’s the story of a prophet who never anointed a successor. So, building a tokenized evangelical missionary community that was distributed around the world — through a DAO — made sense.Dash’s founder Evan Duffield was a “libertarian/anarchist” visionary who forked Bitcoin in January 2014 to make it instant and essentially free, or with negligible gas fees. He disappeared for a while, and so DASH organically transitioned to a DAO.Today, 200,000 U.S. retail locations including Walmart and Barnes and Noble accept Dash so that purchasers can use crypto in retail settings. This payment system operates on gift card rails like any other gifted voucher. There are increasing numbers of DAO tools available. (Source: Coinyuppie)Dash is the “first successful DAO,” according to DASH Corp Co (the legal entity for the DAO) Dash head of crypto, DAO and blockchain marketing, Arden Goldstein. By contrast, The DAO, the first actual DAO, was founded in 2016 and disbanded after a hack, an Ethereum hard fork and many controversies. But, what are the metrics for success?“In crypto, the measures for success are different,” says Goldstein. But, a “healthy DAO is where people participate or are incentivized to work toward common goals.” A “successful DAO is when people are incentivized to complete a task.” And, crucially, when tasks get completed.“Voting, yes or no, 1 or 0, is not the newest concept. The challenge is getting people to continue to participate and keep building a community.” A DAO incentivizes volunteers: Nothing is holding people there to build. The DAO “philosophy isn’t anything new. You need to have skin in the game to participate.”DAO members must stake 1000 Dash to become a MasterNode. Those members are incentivized to do marketing (and other tasks) for DASH rewards. It’s basically an outsourced team for its onboarding of new users around the world.Part of the fun of joining a DAO is encountering the countless crazy or “very active” people on Discord. No one gets fired (usually). But, in-line with open-source coding communities, you can be offered a full-time job if your work is noticed.DAO community members all over the world are incentivized to build the brand. And, Dash is a very useful product for developing countries, where inflation is high and governments are undemocratic. According to wallet downloads, the highest concentrations of Dash DAO members are Russia, Brazil, Venezuela, India, China, France, Italy and the Philippines. Grassroots activism means that this DAO makes sense. A DAO relies on local knowledge. For example, Dash.org is blocked in Venezuela, so DAO members help people use a VPN. DAO members are investors, energized evangelicals and also local expert product distributors.There is a Dash platform for submitting proposals and grant applications which are voted on every month. But, the DAO can decide at any time not to fund you. For example, it once employed a PR firm and the community said not enough press was getting published, so the DAO pulled the funding. This raises a great question: How are real-world contractual obligations met by a DAO?Does the DASH DAO work?“Sometimes, I see the DAO de-fund projects I saw a lot of value in,” Goldstein explains. “As a full-time employee, I still have to put in a funding proposal.” But, with monthly votes, it is still “much faster than other companies I’ve worked on.” The Dash DAO community sees itself as a headless beast. There is a CEO of the corporate entity overseeing the project DASH Core Group, Ryan Taylor. But, he himself is subject to the decisions of the DAO. He oversees the tech development, investment arm and incubator. Yet, the DAO community “will lose it if any press ever says Dash CEO Ryan Taylor.”The problem is that “we don’t know who holds the most tokens […] because you don’t know who your customers are or who your investors are.” However, “the loudest voices usually don’t have the most MasterNodes and are not the most invested, so they yell and scream the loudest to offset that power imbalance.”On the other hand, Goldstein says she worked hard as the only female in the DAO. “I was proud of the DAO when I turned the logo pink for a day and received a great outpouring of support from the men in the DAO.” This has yet to entice a major influx of female DAO members.Like the Kibbutz, communism or even the space race, utopian dreams face a great many hurdles.Governance problems remainHow can DAOs deal with bad behavior by major token holders?In early February, a heated debate in crypto Twitter touched on inclusion, diversity and cancel culture over a number of incidents related to decentralized projects. Again, this spotlight on founding teams raised the question of how a DAO addresses any alleged inappropriate behavior.In a corporation, misconduct can result in termination. In a DAO, founders usually hold a large number of tokens and the keys to the blockchain (multisignature) or otherwise.The conversation was sparked by derogatory comments made by Brantly Millegan, the director of operations of Ethereum Name Service (ENS), about the LGBTQ community and other controversial topics. The screenshotted comments were made in 2016 and were brought to the attention of the board of the not-for-profit behind ENS in early 2022.His contract was terminated with the legal entity linked to ENS. But, what about his large holding of DAO’s governance tokens?DAOs have enormous potential but plenty of limitations too.Members of the DAO put forward a motion to its members, or those that hold tokens to vote on key decisions, to remove Millegan. Yet, he is a “delegate” that holds 370,000 votes that were “delegated” to him. He is the largest delegate in the DAO itself and remains so today.So, what would have happened if he refused to accept the DAO’s decision? The answer is not that simple, according to Freuden.“Do the members of a DAO have a right to throw someone out that built the project?”Yet, if the original mission is no longer viable, they “should be dissolved.” “When a DAO fails, do they give the money back and dissolve themselves? They should. Give back the money with interest like a prenuptial for a marriage that fails.”  One relevant analogy is that VCs might seek to remove a problematic CEO before an IPO.While treasury is one governance mechanism deployed by DAOs, they are usually (at least for an initial period) controlled by the people that built the original project. Or, in the case of Uniswap, venture capital firm a16z controls so much of the voting power that it delegated various parcels to student-run blockchain organizations in order to gain a semblance of distribution. This leads to the question of whether DAOs can truly work at scale. And, how to evolve these voting paradigms beyond token holdings?There are some solutions for the whale token holder problem. Multiple tokens, for example, a utility token on top of a governance token and quadratic voting for whales have become one such mechanism. There are also other protections such as multisignatures keys to a blockchain and time locks on decisions that leave time for any automated decision to eventuate. Each DAO will need to get the structure right depending on the assets at stake.In truth, voter participation is often itself a bigger issue.Can DAO governance work at scale?Participation is also very low in many DAOs. This is likely due to not understanding the tech, apathy or members‘ busy lives. The “bigger the DAO, the smaller the number of voters that vote,” that’s “apathy but also culture,” says Freuden.Freuden’s report cites Dunbar’s Law, a British anthropologist, who argued that people can only maintain a total of about 150 relationships, noting that:“The larger the DAO gets, the less influence the individual exercises, as their perception of their voting power becomes diminished or inconsequential once the individual becomes a smaller part of a large group. This can be seen via Dunbar’s Rule and the Ringelmann Effect, which states that members of a group become lazier, disenfranchised and more detached as the size of their group increases.”Freuden says that “we need to understand how humans relate” to operate a DAO. For this reason, he believes DAOs may work best as an investment fund vehicle, rooted in Cryptoland and function better if small in scale. SyndicateDAO, for example, enabled the creation of 450 new investment group DAOs in just three weeks.For example, FlamingoDAO, a celebrated NFT curation investment DAO, had a maximum of 100 investors due to U.S. Securities and Exchange Commission‘s regulations. The so-called “LAO” is a member-directed venture capital fund and a registered LLC in the United States. They have limited membership to only 100 members in compliance with U.S. Securities law with a 120ETH minimum staking contribution.Still, how were investment decisions made by FlamingoDAO? Did all 70-odd members have a say regularly? Art and NFTs are highly speculative.Thus, there is a belief that investment DAOs work well in the small petri-dish environment. This is due to pooled capital (a max of 7% contributions per member) and crowd-sourced knowledge in a crypto-native club.While scalability may be an issue, every DAO will operate differently depending on the aim, the stage of tech development and the personalities within. Tech people are accustomed to meet ups and hackathons for collaborating around a cause or exploratory idea. But, someone or something still organizes the hack.Mass voting via holographic consensusHowever, there are lots of clever people working on creative solutions to every problem.DAOplatform.io’s Miller cites DXdao, as an example of a successful DAO. DXdao is “a collective that builds and governs decentralized products and services” and runs the DAO completely on-chain. You “earn governance rights by contributing to the community and must keep contributing to keep voting.”DXdao, a fork of DAOstack, also deploys a system of economic curation of proposals known as holographic consensus, a voting algorithm invented by DAOstack founder Matan Field. The system allows a random or semi-random subset to make decisions for the group as a whole. DXdao’s Luke Keenan explains to Magazine that “a small predictions market economy emerges around the likely outcome of a proposal as tokens are staked on it, which increases the potential influence of the issue by acting as a gatekeeper for voters. Additionally, proposals that have been given a financial incentive (boosted) have fewer prerequisites to be considered successful, resulting in increased system efficiency.” DXdao “makes decisions by removing voting power as an economic incentive.”Field, noting that “scalable DAOs are indeed my focus,” explains that the main point is that holographic consensus “does not require a quorum to render a vote valid.”“Rather, it provides a different parallel process to do so. This other parallel process is a ‘prediction game’ played (for profit) by the ‘predictors’ who can be anyone and not particularly voters — they can even be A.I. bots — who make predictions about whether a certain vote will be eventually approved or not by the voters. If, for a long enough period of time, enough stake is being placed over the prediction that the vote will be approved, then the voting process is considered valid, even when the voting quorum is low.”“In other words, a quorum is not a resilient strategy for DAO governance at scale,” says Field.“So, you don’t need large votes on every issue. If only 5% votes, that’s fine. But, if the proposal moves a significant amount of value or makes a significant change, you require a longer, say a 30 day, voting period and a higher quorum,” says Miller.Clearly, the DAO space is maturing. There’s less of a focus on voter turnout and more of a focus on tools like Orca and processes that mean power is delegated to smaller sub-DAOs, committees and working groups.Miller also argues that “studies in psychology show that if you reward people too much for participating in a volunteer activity, then you disincentivize them. So, depending on what your DAO does and what type of contributions you are looking for, you may want to offer symbolic rewards such as POAPs or contributor levels, rather than focusing on giving out tokens for every activity.” “Free lunches offer less intrinsic rewards. Random rewards can provide more incentive.”Link between culture and incentivizationOne thing that DAOs can do (and Web3 generally), is to reward early-stage users a product with effective ownership. They encourage early participation and bootstrapping before there are network effects, at least in theory.For Goldstein, DAOs are “a double-edged sword.” They ferment “evangelical communities in the developing world and may not be fully-scalable, period.” “There always has to be a leader somehow,” she says. “If people don’t want to volunteer for any given task, they won’t.” Sometimes, DAO members have a feeling of ownership or entitlement. “They are not the boss, but they feel that they should be able to see my calendar or that I should provide a daily report on my workday,” complains Goldstein. “I own three MasterNodes and I demand to know X, Y and Z,” they may say.As with most decentralized projects, having strong community leaders to influence the culture is paramount. Freuden notes that the “the DAO’s community builder is the influencer of cryptoland.” They “disseminate the DAO’s culture, the cause and rally the troops and also need to speak in English, not tech.”They need to keep member spirits high.So, the community builder’s role is crucial. Building a community around a coin that promises riches might be easy, but keeping the DAO members motivated as tech development stalls is essential.This is a human task. But, there is a lot of focus on tools that measure contributions and then allocate tokens such as SourceCred or coordinate. Many DAOs also have large growth funds/community funds/grant programs that seek to incentivize development and get things done.The Future?Maybe all DAOs need is a critical mass of onboarding, committed volunteers to emerge and a legendary community builder to herd the flock.DAOs are unique for their ability to bring together a passionate (sometimes obsessive community) in a day. But, for organizations built around a shared goal, managing expectations for all stakeholders is key.The key element of a DAO is community and cause, not scalable governance mechanisms. “Gaming communities work at scale, that’s how DAOs will work, but we will have sub-DAOs everywhere like sub-committees,” opines Freuden.And, as Field notes, new crypto-native voting mechanisms such as holographic consensuses “can handle, in principle, a higher and higher rate of proposals by turning this tension between scale and resiliency into an economical cost.” Scalability is possible but not ensured. The fragmented workplace also remains the key innovation of the DAO. So, for Freuden, “voting is a subset of engagement. The purpose of DAO should allow permissionless engagement and permissionless contributions. DAOs mean people can work remotely.”In 20 years, DAOs may be the AI-powered self-organizing concept that has long been imagined. For now, that seems a long way off. But, we are witnessing the maturing of a new breed of productivity coordination organisms. 

Web3 — or Web 3.0 as crypto boomers like to call it — is a topical buzzword with only a very vague definition. Everyone agrees it has something to do with a blockchain-based evolution of the internet but, beyond that, what is it really?Yet, the conversation surrounding the meaning and prospects for Web3 has become very fashionable in crypto communities. The term gets thrown about by big corporates trying to muscle in on the space while avoiding the negative connotations of “crypto.”But, without an agreed-on definition, it can’t be properly evaluated.Crypto influencer Cobie is among those deriding Web3‘s lack of specifics:“Despite the deluge of undistinguished think pieces issued by the dominie of the day, nobody really agrees on what Web3 even is. Depending on which tribe you belong to, Web3 is a scam, Web3 is the future, Web3 is tokenizing the world, Web3 is VC exit liquidity, Web3 is just another name for crypto, you get the idea.”He adds: “Even the crypto community can’t make their mind up on whether Bitcoin is Web3.”Like many important terms in crypto, a key early crypto thinker coined the phrase and the community has had a few years to figure out what it means. There’s been a lot of reverse engineering driven by diverse ideologies and commercial realities.What‘s becoming clearer is that Web3 is not just one simple idea. It is a series of ideas. It was arguably first coined in a blog post from Ethereum co-founder Gavin Wood in 2014. According to him, Web3 could foreseeably bypass the geopolitical data boundaries and his definition included “trustless transactions” as part of its tech stack. Wood went on to create the Web3 Foundation and the Polkadot network, which trades on being a Web3 alternative future.Web 3.0 will once again shake the world it will empower users on the internet where you can earn extra income with ad views and smart gadgets it will explode exploding like how the traditional internet appeared 30 years ago…#PiNetwork pic.twitter.com/Ijd6NXEtFQ— Pi Network News?? Game App Developer VietNam (@DevelopersVN) January 24, 2022The 2013 Etheruem white paper had earlier given devotees a chance to imagine what a DAO, for example, might look like.Web3 is now peppered with various concepts: sovereign digital identity, censorship-free data storage, data divided by multiple servers and other ideas requiring an exegesis of Biblical proportions such as decentralized autonomous organizations. These various concepts and ideas interlace discussions about the “Web3” movement and its viability.One thread links these concepts and Cobie’s starting definition of Web3. Web3 should include the “decentralization of power” and the “ownership of value” of one’s own content and data.Like many, though, he’s cynical about the prospects of a utopian future coming to pass, noting that he wouldn’t be “surprised if crypto founders are too rich to care anymore and the new web gets built by late-stage capitalism greedcorps that make you buy a fractionalized micropayment NFT on Cardano to operate your electric toothbrush.”Highly criticalThe concept of Web3 has numerous critics who argue that it isn‘t practical or achievable. Critics like Moxie Marlinspike (creator of sslstrip and Signal/TextSecure) can never see a day where people run their own servers, as might be imagined by Web3. Protocols are much harder to create than platforms, he argued, in a much-commented upon piece in early January.While that may be true, some projects like file storage protocol IPFS split data between servers and allow users to select which jurisdictions to share their data between.Yet, complete decentralization is a hard problem to solve. Blogger suhaza replying to Moxie noted:“People don’t want to run their own servers… companies have emerged that sell API access to an Ethereum node they run as a service… Almost all DApps use either Infura or Alchemy in order to interact with the blockchain. In fact, even when you connect a wallet like MetaMask to a DApp and the DApp interacts with the blockchain via your wallet, MetaMask is just making calls to Infura!”So, here are the questions that need to be answered: What is Web3? Is it viable? Will it really be that decentralized?Web3 history is driven by the disappointment of Web2This is a story all about how the Internet got flipped-turned upside down…First, there was the vision. Free for content creation and accessible by everyone. It was popularized by decentralized open-source believers including the internet’s inventor Tim Berners-Lee.And, then there was the reality: data trade-offs for content creation and accessible for a price.Web1 was like a huge Wikipedia page married to a massive Craig’s List. No ads, no logins and a private carve-up of its web pages. Web 2 is the current era of algorithmic targeted advertising and usually free usage in exchange for signing away your privacy and data.25 years ago today, the web became public domain. Thanks to @timberners_lee and countless others who contributed to an open web.We recently wrote our thoughts on Web 3, a future for the web we believe would make Tim Berners-Lee proud. #BUIDL #Web3https://t.co/6CbzvWrgcy pic.twitter.com/VzXyyKNp88— Gitcoin – (? , ❤️) (@gitcoin) April 30, 2018Centralized by large corporates, our data is savaged by those giants. The internet is also fragmented by geopolitical walls such as the Great Firewall of China and their obtuse data localization rules.Berners-Lee is desperately disappointed with how the internet has turned out and, so, a decentralized Web3 reflects Berners-Lee’s original vision: “No permission is needed from a central authority to post anything… there is no central controlling node and, so, no single point of failure.” He now runs Solid, his own Web3 data storage play.So, Web3 begins with data privacy and decentralized servers.Web3 starts with decentralized data storageDecentralized storage of data is a key component of the emerging Web3 tech stack. In Web2, companies control closed databases. Large conglomerates including Facebook, Google and the other usual suspects go to massive lengths to hoard, control and monetize the data they collect. Web3 seeks to shift that.Even by 2019, Web3 was being built at breakneck speed. (Source: https://multicoin.capital/2019/12/13/the-web3-stack-2019-edition/)According to Gartner, five companies currently control 80% of the global cloud infrastructure market: Amazon, Google, Microsoft, Alibaba and Huawei. Web3 seeks to disrupt this status quo.Decentralization means augmenting those power structures by giving participants partial direct ownership of the network. In Web3, users own their data on open encrypted networks. There are many projects in this space.Censorship-resistant P2P data file storage and data sharing applications like Filecoin and IPFS have led the charge. A common characteristic for Web3 storage providers such as Filecoin is that data is replicated in multiple nodes across the network.Yet, the emerging tech stack and ideology still leave many unresolved questions.Empowering users to control their own dataRyan Kris, chief operating officer of Verida, which is building in this space, described his “Web3 vision” to Magazine as “empowering people to control their own data.”Verida’s target audience is Software Development Kits (SDKs) that solve problems in the Web3 stack: identity, messaging, personal storage and data interoperability.An ambitious suite of applications? “Yes, but it’s a frontier technology,” he says, “without walled gardens.” Pragmatically, they are not only targeting crypto clients and are currently building a credentialing system for decentralized health in Bermuda.But, how will Web3 bring us a fairer internet by enabling the individual to be a sovereign? Kris, who has a decades-long background in telecoms, finance, cyber security and blockchain consulting, acknowledges that it is a tough ask:“There are also some good business questions as part of the viability of Web3,” he says. “How can personal data locked in centralized platforms be taken back by users? How are startups incentivized to build the products and tools to enable this transition? How are existing second- or third-tier Web2 companies incentivized to pivot to a Web3 business model so they can compete with existing market leaders?”Kris notes there are regulatory and practical issues too with the new technologies:“On storage, IPFS is great for sharing public data in a redundant and distributed manner, but it isn’t designed for securing private personal data. It is distributed in a way that users can’t own control. This introduces regulatory issues when data can not be guaranteed to be stored in a particular country.”There are also various levels of decentralization in each project. If DApps use centralized storage, they are no longer considered “Web3” companies by the diehards. But, fully decentralized tech is extremely difficult to build.The evolution of the web #web3 #revolution pic.twitter.com/XDc85hyV5S— Tegan.eth | Hiring ✨ (@theklineventure) January 24, 2022More like Web2.5?Some argue that what we‘re actually building at present is Web2.5, referring to businesses that are crypto-native but not fully decentralized in operation. This distinction is important. For example, the NFT itself might live on a blockchain but then there are centralized repositories of data connected to it such as OpenSea. If the server went down, valuable data could be lost.OpenSea is the most high-profile platform for NFT sales, but it is “not exactly community-led,” notes Apollo Capital crypto analyst David Angliss. In 2021, OpenSea also took in major VC investing and made a failed Nasdaq IPO attempt, much to the chagrin of crypto folk.This is where the Web2.5 definition is emerging.“Web3 is not a segment in crypto. Web3 can be anything that uses a blockchain for censorship resistance, including NFTs and DeFi gaming platforms,” Angliss tells Magazine.“Web3 will enable users to be sovereign over their data and identity. This does not exist in the Web2 digital landscape.”“Web2 is similar to feudalism, as in walled-off ecosystems, governed by a select few. For example, an honest user-owned (the account name) “Meta” on Instagram, Facebook then rebranded and then had to make up a reason for suspending that innocent user’s long-term account. Web3 can stop that from happening again. In Ethereum’s name service, if I bought ‘Ethereum.ens,’ there’s no way Ethereum can take that off me.”Angliss cites OpenSea as an example of a Web2.5 business. Being too decentralized, as in fully-censorship resistant, can be commercially unpalatable for a large business like OpenSea. For example, OpenSea “facilitates buying and selling of NFTs. But, in instances, it also disabled the sale of stolen Bored Apes.”Web3 (or perhaps Web2.5, depending on what is being referred to) has been described as just another way to privatize the internet.“Just because it exists in the crypto ecosystem doesn’t make it Web3,” says Angliss. The big danger is that we could just see centralized closed ecosystems rather than a burgeoning Web3.Community-led platforms that are more decentralized than OpenSea are emerging including LooksRare and OpenDAO. LooksRare has even been conducting a “vampire attack” on OpenSea (stealing users away with greater incentives) which means a Web3 competitor to the Web2.5 NFT king could find favor.The introduction of a token allows more options for these new NFT platforms in how they want to build customer loyalty. For example, OpenSea charges a fee, none of which is directed back to the community. LooksRare charges a similar fee (2% for every swap) on every basic sale, with LOOKS token stakers earning 100% of those trading fees.So, maybe Web3’s time is coming?Saw a bunch of journalists asking about web3 from a tech perspective today.Look — it’s not hard: web3 is just people trying to privatize the internet.You know the basic libertarian “herp derp we should privatize all of society” stuff?It’s that, but digital.The end.— Travis.web1 (@coloradotravis) December 20, 2021Whose data is it anyway?Sustained criticisms over the extent of decentralization in Web3 platforms may mean we‘re just too early. New business models and spaces like the Metaverse and play-to-earn games mean users want to own and house their in-game assets and NFTs on decentralized platforms. This is where Web3-native start-ups like Arweave, Sia and Aleph.im offer a different approach.Web3 being truly decentralized requires the creation of new off-chain models that side-wipe cloud computing and Web2.5 definitions.According to the 2021 Messari Report: “Arweave and Sia emerged this year as formidable competitors.” They seek to protect the risk of an NFT being lost because part of the data on a centralized server was hacked.Another Web3 cloud competitor, Aleph.im, seeks to replace the cloud computing layer with an alternative service network. It’s a decentralized computing network supporting multiple blockchains by communicating with them through a messaging protocol to retrieve and encrypt important data.Johnathan Schemoul, founder of Aleph.im explains to Magazine that: “the solutions that the Aleph.im network provides are a truly decentralized alternative where it’s needed the most: storage and computing. Blockchains are not designed to address large storage volumes or high-performance computing, as they typically focus on consensus and security.”That means that large volumes of data are often stored off-chain, increasing the data storage risk for centralized databases like OpenSea.Aleph.im enables users to rely on both blockchains as well as off-chain decentralized cloud technologies to provide true ownership of digital assets.“To build a robust decentralized web, we need to extend the decentralization beyond layer 0 and 1 where consensus and security is handled. The growth of the Aleph.im ecosystem is proving that Web3 can be decentralized and we’re committed to continue this effort.”Aleph.im raised $10 million in mid-January 2022, and its network is used by gaming company Ubisoft for its NFT storage, for example. This is the first time a mass consumer gaming studio has given this level of decentralized ownership to users.Importantly, it also suggests Web3 could succeed as a B2B model, even if the average consumer doesn’t care about “decentralization.” Crypto trends often start with gaming.Aleph.im is a middleware blockchain agnostic play. (Source: Image: https://aleph.im/#/)Will tokenomics help Web3 adoption?Consumer adoption of Web3 is a different realm. All of this attention on decentralization may not be something the average user cares about. The question of our time remains: How much do people value privacy over convenience? Can tokenomics overcome the privacy versus convenience conundrum?Jonathan Hooker, managing director at Holon Global Investments suggests to Magazine that human internet behaviors will change. He starts his Web3 explanation by asking: “Do you own Bitcoin? How does owning and controlling your own self-sovereign wealth make you feel?” And, then:“What if told you could own and control your own data like you control your Bitcoin?”“The business model must find the thing that is important to that person,” he says. “Is that person suspicious of the government or placing their own health records on centralized systems they don’t control?”“How important is it for that person to have those medical records at a critical time anywhere in the world? Filecoin and IPFS can solve these data concerns.”Competition for NFT storage will be important for Web3 adoption. Filecoin launched its NFT.Storage in April 2021, also providing free off-chain storage of NFT metadata and assets.One of the most significant implications of denationalization and blockchain technology is in the area of data ownership and compensation for lending, staking or using that data. This is the ground-breaking claim of Web3. Web3 provides value to users through tokenization and by enabling complex integrations with smart contracts.Tokenomics can provide an “Internet of value over just the internet,” says Hooker.Yet, as many simply sign into Web2 apps through a Facebook API without thinking twice, we have to question how much tokenomics can truly change human behavior. The big players, the Googles, Baidus, Tencents and the Facebooks (and its parent company Meta) all already own our data. Is it too late to get it back?Maybe not. “Data is like fruit, at the beginning it is fresh but it decays over time,” he says. “Big tech’s data on us will have a shelf-life.”Kris, the Web3 founder, agrees with Hooker that “privacy is not the issue, value for data is the issue.” People accept that they will lose their data privacy, so they might as well tokenize it. People give up their data readily, why not get paid for it?“Personalized data offering is valuable in a personalization context,” he says. “I’ll sell my social media data but I won’t sell my health data, for example.”Key management is a problem for both Web3 purists and mass consumer adoptionOthers dispute this optimism about data tokenomics. Aaron Levie, founder of cloud computing company Box, while noting its great potential, questioned the viability of Web3 models in a Tweet thread:“Why? Because data nearly always works in the context of an app. Twitter social graph, YouTube channels, Spotify playlists, Airbnb listings, Shopify stores: these develop over *years* within the context of a product and APIs that moved quickly to build value and trust over time.”Levie argues further that tokenomics may make things more difficult. “With Web3 ideals, we’ve likely added community governance and tokenomics into the mix, which adds a new negotiation vector.”This is the ease of adoption problem: “These are hard problems about human coordination, not about software or blockchains.” Many will choose a Facebook API for ease of use. It’s the business model and UX/UI experience that is crucial.For example, there’s a common meme about the ease of logging to Web3 by the crypto faithful that is quite misleading. It goes something like: In Web1 there were usernames and passwords. In Web 2, you could sign in through a Google, Facebook or Twitter API and in Web3 you just connect your wallet. Sign in to MetaMask and pay with Ethereum, for example.But, in truth, Levie is right. This meme ignores the stress of key management for blockchains. Even seasoned crypto folk have a heart attack every now and again, let alone the newbies.Kris, the start-up founder argues that: “Web3 needs a better UX, public-key cryptography is a different way to login, it needs to be improved. What does key recovery look like for a user?”And, at this stage, any possible solution is most likely not 100% decentralized. So, there’s room for improvement in Web3 key management. “The second someone loses control of their keys, it’s no longer Web3,” says Angliss.So, fully decentralized key management remains a major problem for Web3 purists. Add this task to the too-hard basket for now.Private key meme. (Source: https://memegenerator.net/instance/62834627/yoda-a-private-key-you-have-mhm)Is 2022 the year of Web3?Web3 needs to solve various problems first before it will be embraced by the mainstream. Importantly, it needs to be better and cheaper — or have other significant advantages — over Web2.5.Scalability without sacrificing decentralization protocols remains a clear goal for Web3. But, decentralization is hard and centralized services are more user-friendly in many ways.Ethereum co-founder Vitalik Buterin himself stated recently this is why (centralized) Binance to Binance transactions trump Ethereum payments in some places because they don’t have to be verified 12 times to be processed.Referring to very high Etheruem gas fees, he went on to say: “I do think a lot of people care about decentralization, but they’re not going to take decentralization if decentralization costs $8 per transaction.”“In order for blockchains to able to actually be something that people are going to adopt for mainstream applications, it has to be cheap… not by the standards of whales who bought crypto in 2014, but it has to cheap for the people who enter the system today.”For now, it seems that Web3 is still an aspirational concept held hostage by the crossover between scalability, tokenomics, mainstream adoption and the diehard Web3 believers in decentralization.Like much of crypto history.But, watch this space.