Web3 embodies a key transformation of the Internet from its current state, trading centralized authority figures and middlemen for decentralized systems and community-held possession. The characteristics unique to Web3 are incredibly appealing to those deeply embedded in the crypto world. Nevertheless, it's crucial that we also consider these subsequent aspects:
1. People find it hard to start learning about Web3/Crypto
Everyone's foundational understanding of crypto and Web3 is distinct, a reality that is due to several factors:
The underlying mechanics of crypto and blockchain are complex. This complexity often hinders beginners from finding an accessible entry point for learning. Many fail to realize that mastery in cryptography is not a prerequisite to contribute to the Web3 environment. In fact, over the last decade, crypto infrastructure has grown to the point where non-technical individuals can also participate and create.
Separating authentic progress from media-generated hype in the industry can be incredibly challenging. The industry relies heavily on hype, making it difficult for those not intimately involved to discern fact from fiction. This is part of the reason for the creation of resources like this newsletter.
Our advice is generally to devote quality time to exploring the products and engaging in conversation with their creators. This hands-on approach helps differentiate marketing tactics from fundamental developments. However, knowing where to begin and who to trust can be a challenge in itself. With enough effort and time, one can cut through the noise and identify the products and participants that genuinely resonate. The challenge is the multitude of concepts to comprehend, such as NFTs, DAOs, crypto tokens, and more.
Numerous people are innovating different concepts within the realm of Web3, all originating from the core innovation of blockchain technologies and the benefits of a decentralized, immutable record system. Grasping the advantages and disadvantages of blockchain technologies can guide you in determining which applications are viable and which are not.
2. People want to know the “rules” to Web3
In a nutshell, there are no defined rules. "Web3" is merely a term we're all utilizing to delineate a particular sector and stage of the internet. It's akin to labels like "Gen Z" or "social media," invented simply to categorize a group or concept. Some treat Web3 as a doctrine that needs to be strictly adhered to, but it's not. We recall a statement: "If our customers aren't self-custodying their assets, then we're failing." That's incorrect. As there are no rigid rules for dancing, so too, with "Web3," you have the freedom to follow your path. You can opt for Web2, Web 2.15, Web 2.63 — it's your call.
We perceive a trend wherein businesses strive to cater to the crypto enthusiasts on Twitter and advocate for a thoroughly decentralized world. Unfortunately, such a push overlooks the practical challenges of scalability in fully decentralized solutions and the advantages offered by centralization. At best, these companies underestimate the complexity of managing decentralized systems at a large scale. At worst, they're simply jumping on the Web3 bandwagon, sketching impractical visions of a completely decentralized future.
3. Finding the opportunity in Web3
While collaborating with larger corporations to devise their Web3 strategies, we often notice that their discussions revolve around the latest trends and headlines. They're trying to ride the current wave, yet with the rapid pace of change in Web3 ideas and experiments (cycling monthly or quarterly), these larger firms can't outpace startups in terms of innovation or capitalizing on short-term trends. However, they have the opportunity to accrue value as Web3 paradigms bring about significant digital lifestyle changes.
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Rather than advising clients on chasing ephemeral trends or formulating their "Web3 strategy," we typically propose our preferred workshop exercise that emphasizes "why, then how."
The exercise commences with the key leadership team envisioning how their business or industry would transform if the following became a reality:
Then, we pose the following questions to the team:
This exercise doesn’t presuppose a solution where no problem (or potential problem) exists. Many companies are prematurely shoehorning a blockchain-based concept into their business strategies where it's unnecessary. Unless companies require blockchain as a promotional tool, the fact is many are imposing it as a solution to non-existent problems.
4. People underestimate how hard it is to custody digital assets
Managing digital assets is more challenging than it appears. It's easy to overlook the extensive infrastructure and regulation that underpins the storage of conventional financial assets. The existing system may have its shortcomings, but generally, we feel confident that the money we hold in our Chase account is secure. Digital asset management can be misleadingly similar to traditional asset custody, but it's essentially a whole new game. Elements like key management, DRP, cyber and physical security, customer asset segregation, and more require entirely novel approaches.
When someone asserts that they're developing a product incorporating centralized digital asset custody, our general advice is to consult regulated custodians like Paxos or similar institutions concerning asset custody. Companies like Paxos have dedicated many years to perfecting digital asset custody, balancing the utmost safety and security with the appropriate regulatory framework. Unless it forms a fundamental part of your product offering, the significant investment in time (years) and money (millions) needed to perfect, maintain, and continue developing it is often not worthwhile.
When someone informs us their products are based on customer self-custody, we usually aim to enlighten them about the realities of self-custodying digital assets and the difficulties of scaling this approach. Until there are tools that can genuinely assist a layperson to manage her own digital assets, the solutions will struggle to scale. She's going to need help resetting her password at some point.
Drawing a parallel: If you were creating a web application, you wouldn't divert your focus to constructing web server infrastructure — you'd likely just use AWS.
