In 1970, the economist Albert Hirschman wrote a landmark piece of work on human behavior when faced with declining institutions: “Exit, Voice, and Loyalty.” His schema presents a choice framework for customers and citizens: When quality decreases, one can choose to stop consuming, speak up or stay true.
There were always limitations to this model, but technology today also offers us an increasingly exciting response: Build. This tech sector “building” has so far been predominantly focused on software, with many of the most successful companies of our age built on code. But as interest grows in blockchain-based technologies that are designed to increase privacy and security, such as Web 3.0 and decentralized autonomous organizations, many are exploring what they see as the new internet frontier.
The energy and resources going into this exploration of new technologies are such that we are likely witnessing the advent of new types of organizational structures for the network age. These novel institutions model a new type of ownership, restructure social relations and ultimately provide another mechanism for innovation.
A New Type of Ownership
Little more than 30 years ago, Sir Tim Berners-Lee wrote a seminal document outlining his vision for the web as a network of information systems with open protocols. In this idea, known as Web 1.0, one of the essential requirements of this new network was decentralization, i.e., a lack of central control and a system wherein the individual users and builders accrued the benefit.
However, as the arteries that connect the modern world multiplied, the tech giants came to dominate. This shift to Web 2.0—what is essentially the model today—meant companies controlled the servers and centralized the system. Now it was not individual users who retained the value of the network but rather the platforms that monetized users’ content. Network effects and scalability were the upsides, and in return, consumers received goods such as Google Maps and Search for free.
For many, this destroyed a fundamental ethos of the web: In ceding power to a few companies, one of the essential benefits, more autonomy and opportunity, had been lost. But the creation of cryptocurrency has revived this Web 1.0 idea. Cryptocurrency does not operate on a client-server model but rather on a peer-to-peer network that, because of blockchain and all the different nodes in the network to review and confirm new information, doesn’t need a trustworthy intermediary as a middleman. Governance is dispersed, individuals own their data, and there is no single point of failure.
As Chris Dixon of venture capital firm a16z has written, Web 3.0 “combines the decentralized, community-governed ethos of Web 1 with the advanced, modern functionality of Web 2.” Or as the investor Packy McCormick puts it, the internet is owned by builders and users, and value transfers occur with the use of tokens. If tokens allow innovators to capture economic value without closing off the network, then Web 3.0 also helps fix the incentive structure required to solve the world’s biggest problems. It attempts to create collective funding models for goods with high social impact that often find it hard to attract capital.
Experimental, outlier solutions—such as research into human longevity, which receives little public funding—become viable, requiring the participation of only a few individuals rather than relying solely on the will of governments or standard corporate investment. This is what’s necessary to close the exponential gap between today’s institutions and the challenges they are ill-equipped to face.
New Social Structures
For a significant chunk of the global population, the technological revolution that started with Web 1.0 has been liberating. From the ease with which we can navigate life through a smartphone to the progress that technology is enabling in health, the march of progress has broadly been a positive thing. From a social perspective it has enabled greater individual liberty and provided far greater opportunity to form new bonds of community and cooperation. Ultimately, it has also made us less reliant on the state as an organizing force.
This broader social and global realignment as a result of the web can be put in terms of the long-range evolution of humanity, from tribes to hierarchical structures to today’s era of collaborative networks. These new types of community have often been cultural, driven by shared beliefs such as with Black Lives Matter, but they have also generated scientific or technological progress. This was the case with the distributed research project on protein folding, [email protected], which helped scientists use latent computing power to develop new therapeutics for COVID-19.
Web 3.0 and decentralized autonomous organizations (DAOs) provide this cultural element but also attempt to put a new structure behind it. DAOs act as vehicles for collaboration among diverse groups online with no centralized leadership. Rules around a DAO’s governance and spending are immutable and baked into its smart contract. The technical principles underpinning the DAO are those which built crypto and blockchain: openness, transparency and, through tokens, participation.
For some, this structure might not feel that radical or appealing; the token is all that is really different. For others, it provides a new route to build, presenting a growth model that can get over the “bootstrapping problem,” i.e., how to build networks before scale (“scale” meaning that the value is only really created when networks meet large thresholds of users). This is partly why critics’ focus on the speculative nature of parts of crypto—or, more recently, nonfungible tokens (NFTs), most commonly seen as GIFs for sale—often misses the mark. Actually, the wider question is about property rights and ownership in the internet era.
Many people involved in Web 3.0 are chasing quick returns, which is not necessarily irrational in an environment of long-term low interest rates because many traditional investment mechanisms present low returns. But these various communities are often united in their focus on rethinking traditional institutions and organizations. For example, for some on the center left, Web 3.0 and DAOs offer the promise of a 21st century version of the cooperative movement (as in your local food co-op), with groups creating, buying and selling together. More radically, Blockchain Socialist views Web 3.0 as an essential organizing tool for the anti-capitalist left. On the right, particularly within the more libertarian-leaning groups, it presents a reality nearer to that of the sovereign individual, and it demonstrates declining state power.
New Methods of Innovation
Part of the appeal of Web 3.0 is its attempt to create new forms of incentivized participation, whether in gaming, publishing platforms, decentralized finance or scientific discovery in the white spaces of knowledge. But the difficulty is in making these promising things happen. With innovative scientists all too often struggling to secure mainstream funding, distributed social structures offer a new way to fund pioneering research agendas, in biotech or space for example, in which progress has sometimes been slowed by sclerotic structures or prevailing political winds.
This inertia of existing institutions has prompted those excited about our collective abilities to think outside the box. For example, VitaDAO describes itself as a “decentralized collective” that is funding early-stage research into human longevity. This is an area that can have profound social consequences, such as potentially extending a person’s health span (i.e., the amount of time living in good health) by finding cures for chronic diseases, as well as increasing lifespan.
Research into longevity is still a nascent field. The National Institutes of Health does have a Division of Aging Biology, and searches in PubMed on the subject of longevity have increased around fivefold since 2000, but they are still around ten times lower than searches on cancer, for example. Yet it is the more radical and future-facing areas that researchers in technological fields will seek to challenge.
On the whole, this is a good thing. Too many in politics are pessimistic about our potential, with our more miserabilist elements spilling into anti-natalism, rather than trying to improve the lives of many. However, the potential for new types of institutions to fund our future will be seen as a threat to power for those who still uphold 20th century ideals of governing.
What Parts of Web 3.0 Will Stick?
At a time when nationalism and protectionism is again on the rise, it is unlikely that many in politics are going to embrace the greater decentralization that Web 3.0 brings. In fact, one of the major battles playing out over the past few years has been around who controls the internet. The “splinternet” is an ideological battle between an authoritarian view of the internet and a free and open web. This battle shows why Web 3.0 and DAOs should not be presented as an escapist vision. Rather, these ideas are about the opportunities that the evolution of the web presents, and the institutions and networks it creates. Essentially, the debate is about governance.
Some experts such as Balaji S. Srinivasan have brilliantly laid out the idea of a Network State, which “starts with a virtual university, bootstraps a digital economy, and can be forked to create new opt-in polities.” This network state could well be a technological possibility within the near future, and physical nations should be thinking more clearly about the potential that decentralization can bring. With the increase in remote work in a post-COVID world, nations will likely compete for global talent in new ways, as Estonia has done through its e-Residency.
The world of Web 3.0 is still some way off, but companies such as Cloudflare are betting on this new era. At the moment, we are probably somewhere near the peak of inflated expectations. In the ensuing trough of disillusionment, those who are often reflexively skeptical of new tech will likely view their pessimism as vindicated. The skeptics sometimes get it right, but more often such a mentality is a poor guide to the future—and it also creates disengagement at a time when engagement is much needed.
Those seeking to understand how the world is changing need to dig under the surface of the excesses of crypto that were mocked by “shitcoins” like Dogecoin. Some may still be skeptical, but the push toward Web 3.0 is a people-driven trend, and understanding such trends often reveals much about the world as we know it. People are exercising new forms of voice and often exiting from traditional institutions that are no longer serving them. Loyalty to old ideas should not be expected, and people now have the tools to build something new. It’s an exciting revolution.