The New York Times: Web3 at the Tipping Point

Author: Ephrat Livni, The New York Times

Compiled by: 0x137, 0x76, Rhythm BlockBeats

Original Title: Welcome to 'Web3.' What's That?

Crypto enthusiasts have successfully foreseen that a future internet based on blockchain is gradually transitioning from an ideal to a reality. In some areas, bold experiments have already begun.

Image Source: The New York Times; Photography: Dado Ruvic and Rick Wilking, Reuters

At the beginning of 2020, the price of one Bitcoin was only $7,000. Today, the price of one Bitcoin has soared to $50,000, and the total market value of all cryptocurrencies, including Bitcoin, has exceeded $2.3 trillion. This growth has led people to glimpse a completely different future for the financial industry and to begin questioning the long-standing mainstream societal views on value judgments.

Bitcoin is the earliest cryptocurrency project, relying on a public ledger maintained by an open-source computing network, a technology later known as blockchain, which allows for peer-to-peer payment settlements without the need for mutual trust. Today, there are already thousands of cryptocurrencies issued based on blockchain technology, with these tokens circulating 24/7 across different regulatory policies and trading markets.

This decentralized internet built on cryptographic technology is what people refer to as "Web3." Supporters claim that Web3 will democratize everything and reshape the future of art, business, and technology, ultimately replacing traditional commercial intermediaries, allowing people to take direct control of their destinies.

If you still find these claims somewhat far-fetched, consider the following data from PitchBook: This year, venture capital funds have invested a staggering $27 billion in cryptocurrencies and related projects, surpassing the total investment of the past decade.

Currently, large investment institutions and blockchain industry practitioners are actively lobbying in Washington, hoping to influence policymakers to introduce industry policies more favorable to the future development of the token economy. This so-called "token economics" is already widely applied in many emerging crypto communities, indicating that Web3 is no longer an abstract concept but an indispensable part of people's daily lives in the future.

Entering the NFT Economy

NFTs, or non-fungible tokens, are unique code bits associated with images, videos, audio, or other items on the blockchain. In October of this year, artist Cam Rackam sold 10,000 NFTs based on meme images from the "Wall Street Bets" message board on Reddit, earning as much as $2.5 million. Cam Rackam stated that in his "relatively successful" 18-year career, he had never received an invitation to the Art Basel Miami Beach art fair. However, last week, he was invited to this fair and remarked that traditional artists feel forgotten amidst the NFT craze.

According to data from Chainalysis, in 2021, people spent approximately $27 billion worth of cryptocurrency on mainstream NFT platforms, while the total for all of 2020 was only $114 million. What exactly do people gain from NFTs? NFTs can grant public ownership and proof of authenticity for items, but this can include or exclude copyright. Frank Gerratana from Mintz Law Firm said, "It's like in the real world, an artist might sell their work but retain the intellectual property rights to it."

Just last month, Miramax sued renowned director Quentin Tarantino, claiming that Tarantino proposed to auction NFTs generated from a high-resolution scan of the original script of "Pulp Fiction." Miramax stated that this use of brands and images from the film infringes on the company's rights. For Gerratana, this is one of the first lawsuits related to NFTs, and the outcomes of these cases could have significant implications. Meanwhile, their corporate clients are still trying to figure out what NFTs are and why people would buy them. Gerratana said, "These clients want to know, is NFT really the future? Do we have to sue?"

However, for artists like Cam Rackam, the new revolution has already arrived. Rackam said, "The most ridiculous are always those 'baby boomer' generations who understand nothing." Perhaps he is not referring to the older generation but to an outdated mindset that refuses to accept new concepts of art and value. He pointed out that people were once reluctant to accept the mass-produced prints promoted by Andy Warhol, including the ultimately popular "Campbell's Soup cans."

Exploring Decentralized Social Media

Another Web3 concept that challenges traditional views is decentralized social media platforms, where users can earn and trade cryptocurrencies.

On a blockchain application network called DeSo, users can earn rewards based on their popularity, engagement, dynamics, and creations. Nader Al-Naji, a former Google engineer and founder of the DeSo platform, believes that internet users will eventually bypass platforms like Twitter and TikTok that profit from pushing ads to them and will directly capture these earnings themselves.

Al-Naji's first cryptocurrency project was Basis, an attempt at "decentralized Bitcoin," but he ultimately paused the project due to regulatory concerns and returned the funds raised from mainstream venture capital firms like Andreessen Horowitz (a16z) and Sequoia Capital.

BitClout is Al-Naji's second project, where users can trade tokens associated with popular cultural figures, with the value of these tokens fluctuating based on usage. This project sparked some controversy when it launched in March, with some even labeling it a "dystopian social network."

However, the developers and community of BitClout believe this is a "Renaissance" about money that is currently unfolding. Here, any user can earn tokens or "frictionless tipping" rewards based on their ideas, music, or mere presence. If something a user says or does is appreciated by others, those users can send tokens to them via the "diamond" button in the BitClout app.

Al-Naji said, "Those small creators that people have always wanted to support will be able to reap the majority of the benefits in BitClout, and users can directly gift them 'diamonds' or purchase the creators' tokens as an investment."

Is All This Feasible?

Gary Gensler's role at the U.S. Securities and Exchange Commission (SEC) is to ensure that cryptocurrency companies operate within the regulatory framework. However, as the chairman of the SEC, Gensler believes that traditional regulatory rules still apply in the emerging field of cryptocurrency, which has caused headaches for many Web3 supporters. This means that crypto assets will be treated as securities, requiring registration with the SEC to ensure adequate disclosure and investor protection, along with all associated costs and scrutiny.

But regardless of whether these projects are compliant, many application scenarios for current blockchain systems remain contentious. Gensler pointed out that decentralized ledgers maintained by thousands of computers come with a "cost," stating, "There are reasons why people prefer centralized ledgers."

On the macro level of currency, Gensler revealed to us that he personally aligns more with Plato's view of money compared to Aristotle. Aristotle believed that money has four characteristics—portability, durability, divisibility, and intrinsic value. Plato agreed with the first three characteristics but argued that money has no intrinsic value and is merely a "symbol."

Before serving as SEC chairman, Gary Gensler taught finance courses on cryptocurrency at MIT, prompting his students to ponder, "What is the value proposition of cryptocurrency? Are all cryptocurrencies or application tokens that claim to compete with the dollar truly valuable?" Gensler believes the answer may be "possibly," but the market is unlikely, if not impossible, to accommodate over 6,000 similar projects.