Web3: New scams on the blockchain

Over the last 5 years, galaxy-brained folks have had time, thanks in part to a pandemic, to dream big about Web3 after catching some inspirational podcasts and YouTube gurus

What was so intriguing to so many about Web3 anyway? Since nobody could really agree on exactly what it was, it could literally be whatever aspiring entrepreneurs imagined it to be

Common threads appeared Blockchain Bitcoin and Ethereum DeFi Decentralization of organizations, infrastructure and data Freedom from tech giants Self-sovereignty Privacy Opportunity

All the kinds of ideals that generate charismatic personalities

Who cares about maturing cloud adoption or better integration standards, when you can explore a whole new economy based on blockchain, cryptocurrency and NFTs? Why wouldn’t tech talent leave standard Silicon Valley-funded confines to live this Web3 dream?

When a space is overhyped and undefined, it encourages the rise of the worst kinds of actors. Web3 never had a chance, with its uncertain crypto-economic roots and the use of blockchain technology, which hasn’t proved adequate for enterprise-class business

Crypto-Schadenfreude: Sham, bank run & fraud

Nobody enjoyed more of a media darling status in the Web3 world than FTX founder Sam BankmanF r i e d , w h o f a m o u s l y p l a y e d v i d e o g a m e s o n investor calls and shuffled around the tradeshow circuit in shorts, as he donated millions to “effective altruism” charities and crypto-friendly politicians

N o w S a m ’ s b e e n a r r e s t e d a n d s e t f o r e x t r a d it i o n f r o m t h e B a h a m a s t o f a c e c h a r g e s i n t h e U n i t e d S t a t e s , w i t h F T X t h e m o s t f a m o u s f a i l u r e a m o n g s e v e r a l o t h e r f a l l i n g d o m i n o e s ( L u m e n , C e l s i u s , G e m i n i , o n a n d o n ) i n t h e c r y p t o r u g p u l l

It was fun to mock celebrity shill ads, but it’s not funny to see $2 billion in investor deposits disappear into the ether. A lot of VC whales, other DeFi c o m p a n i e s a n d h a p l e s s i n d i v i d u a l s w e r e a l s o duped and parked their funds there too.

There’s no cash reserve regulation or FDIC account insurance in place for crypto, so when buyer confidence eroded, market makers sold, accelerating the ‘ rug pull’ effect Ripples collapsed as much as $183B or more from the total market cap of cryptocurrencies

Blockchains looking for solutions

Besides cryptocurrency, the most common term we hear in Web3 discussions is blockchain, which is a distributed ledger technology (or DLT) underpinning Bitcoin, Ether, Dogecoin, and thousands more dogshitcoins

If cloud was just ‘ a computer somewhere else’ then blockchain is more like ‘ an append-only database everywhere else’ due to its decentralized consensus mechanism and cryptography.

Though I’m a skeptical analyst, I admit thinking there was some sleeper value in blockchain, if a few properly governed projects came along that could create safer, smoother rails to adoption.

We’ve seen vendors with very nice use cases for distributed ledgers, particularly in multi-party transactions, IP and media where a blockchain can use a combination of transparency and immutability to provide a decentralized, shared system of record whether nodes are exposed publicly or among permissioned parties

The Intellyx Take

The main roots of Web3’s failure weren’t about technology, they were about misaligned incentives and the inevitable association of Web3 with crypto and NFT market madness

I’ve met early participants in the blockchain space with intentions for a better world with unique computing models and applications particu weren’t building mansions on islands and taking crypto-bros out on yachts.

Who knows? Once the incentives and risks of easy money are washed out of the market for good, maybe the dream of global access to a new, decentralized internet of applications and value could someday be realized. z