The surging popularity of Bitcoin and Ethereum in 2016 inspired a series of blockchain-implemented start-ups in various sectors with promises to change the world forever. Most notably, the application of blockchain in digitalization of traditional services like the financing sector, political voting system or decentralization of internet services were deemed the next big step, also known as web 3.0. However, faith in the technology got shaken to its core as crypto price crashed as quickly as it rose to fame. Fast forward to today, more than half a decade later, the future of those companies is now fogged with regulations, technical difficulties, and cyber security vulnerabilities.
History of the web: from web 1.0 to web 2.0
Before moving forward to examine what is going wrong in the blockchain industry, there is a need for a brief understanding of how we got here. In the early 1990s, Sir Tim Berners-Lee, a British computer scientist, created 3 fundamental technologies that we are still using to this day [1]. Those are Hypertext Markup Language (HTML) used for formatting website, Unique Resource Locator (URL) used to identify resource on the web and Hypertext Transfer Protocol (HTTP) used for transmitting resources throughout the web. Although the technologies are only able to do basic functions like emailing or read-only news, it laid the foundation for the ground-breaking disruption next to come.
Picture 1: Sir Tim Berners-Lee. Sources: Wikimedia Commons
During the late 1990s, the world witnessed the boom and pop of web 2.0 hype with rise and fall of many information technology companies as capital injection magnified and directed development of technologies. The world of web at that time was chaotic as users were able to share, to edit, to decorate pages and much more. The likes of Myspace in the early 2000s gave a slim sight of just a side of what social media eventually became, with the likes of Facebook (Meta) and Tiktok now becoming a part of our everyday lives [2]. Targeted advertising has become the norm and ideal way to generate revenue for majority of online businesses as there is almost no commercial website without an ad nowadays.
Moreover, it also led to the centralization of web services to ensure better performance and more efficient online economy. For example, Facebook, which is now known as Meta, stored billions of user data to enhance its targeted marketing algorithm [3] while web security provider likes Cloudflare helps to mitigate Distributed Denial-of-Service (DDoS) attack for millions of users [4].
While it sounds good at first, in hindsight, information technology and communication services companies are given too much power to the point that even a nation’s election result can be influenced. In a not so distant memory of 2018, the controversial case of Cambridge Analytica still shocked the world when the use of personal data in Trump campaign was revealed [5].
Furthermore, even though there are considerable amount of research and effort to mitigate single point of failure, incidents have occurred and its effect is tremendous. For instance, in July 2022, Rogers, an internet service provider in Canada, went down due to an update in their network, which causes IP routing network to went out of service [6]. As a result, almost half of the country's internet users were unable to access the internet, incurring millions of damage to businesses across Canada.
Picture 2: Roger internet outage. Sources: blogTO
Web 3 and Blockchain
Hence, a decentralized internet solution is therefore called. Web 3.0, as defined by Simplilearn, enables users and machines to interact with data, value, and other counterparties via a peer-to-peer network without the need of a third party [7]. As also written on Investopedia, “Instead of relying on Internet Service Providers, anyone with an Internet connection would be able to provide basic cloud services” [8]. Moreover, any change to a project has to be approved by more than 51% of validators. While this might lead to 51% attack vulnerability that we will discuss in part 2, this mechanism promotes the practice of transparency between developers and users, which is missing in the current day.
Picture 3: 51% attack on a blockchain. Source: Cointelegraph
Thus, it effectively eliminates intermediaries and gives back the power to manage data back to its user. It has to be noted that people have not fully grasped the full meaning of user power in digital space, as privacy is the only side that rose to fame in recent years. Digital Power is defined as Internet users' capacity to act, according to the French Institute of International Relations [9]. One instance that I believe will come to light in coming years is selective exposure- the choice of filtering incoming and outgoing sources of information based on one's own preference. As everything in life, there are two sides of a coin to this story.
On a positive look, less exposed surface means more valuable user information becomes. Although the limitation of sharing data to companies are easily seen, its consequence is not that clear at first sight. As mentioned earlier about the rising popularity of privacy, targeted advertisement is deeply affected. Fewer trained data leads to lower accuracy in targeted advertisement, which means less revenue. In the short term, companies will get into trouble when trying to generate revenue as we have seen in the case of Meta in 2022 due to Apple's privacy policy change [10].
Picture 4: Meta's average revenue per user. Source: Statista
However, this will shift the focus from generating revenue from data to making relationship with customers, which means data-centric model to user-centric model. Consequently, companies who can convince users to share data with them, either through ethical and transparent usage or creative solutions like revenue sharing model, will have a competitive advantage over those who failed.
On a negative side, in contrast to popular belief, less accurate targeted advertisement will narrow incoming information sources’ diversity. While it is true that tailored marketing magnifies the filter bubble issue, which means isolation of receiving information to only those matching one’s worldview, by letting people choose receivers, it only intensifies the filter bubble instead of solving it. Why? Simple! Because it has been studied since 1975 that people don’t usually read articles that contradict their worldview [11], and even if they do, they have strong opinions against it. Why would they even think about sharing information to those sources? Even within the supportive community of blockchain, there is a resentment against blockchain tech developed by “old-school” companies like Meta. [12].
Picture 5: Filter bubble. Source: Flickr
Technical issues
In order to fully understand this conflict, let’s examine the technical issues blockchain application projects are facing. From an overview point, there is a dilemma called blockchain triangle trilemma, which refers to the scarification of one out of the three key features for a blockchain technology [13]. In fact, for each of a scarify, there are popular projects to represent each: Solona for security, Bitcoin for scalability and Ripple for centralization. While Solona security issues got on the headlines several time and Bitcoin scaling problems are popular, Ripple’s centralization is not often talked about in North America due to the fact that it is banned from the U.S since 2021. The issue lies at the 150 validators Ripple have at the point of this writing, of which 35 are personally picked by Ripple themselves are used as default [14]. Not only this amount is substantially lower than competitors (1300s for Avalanche [15]), but also the existence of default nodes subjected to the company is against the philosophy of decentralization.
Picture 6: Blockchain Trilemma. Source: Medium
Moreover, as mentioned by the Gemini project website, “Unlike the client-server relationship that dominates central network infrastructures, public blockchain networks utilize decentralized consensus mechanisms” [16]. Hence, any update and changes take a much longer time to deploy compared to traditional projects we are using in web 2.0. It has to be noted at the time of this writing, most blockchain project front-end applications are hosted on cloud servers using web 2.0 services like AWS or Cloudflare. This was proven to be a significant issue with the Cloudflare outage incident causing crypto exchanges to went down, even if some of the back-end technology are decentralized and hosted on a blockchain network (Cloudflare outage).
Thus, it is not difficult to see the link between private blockchain made by "traditional tech" giants with centralization, which validating nodes can potentially all be under their control. Even in the case that companies' interest only affect 51% of validators directly and indirectly, the transparency and decentralization of web 3.0 are deeply affected. In fact, it would not be unfair to label these projects as web 2.5, as they are still depended on web 2.0 technology and ideology.
One solution to mitigate this issue was to host the whole application on a blockchain network, not just the backend. For example, Ethereum Name Service (ENS) project’s goal is to replace the role of Domain Name Service (DNS) in the current web 2.0 era [17]. This represents a significant meaning: cutting off centralization and deepening the meaning of “world wide web”. If it is not already made known, some websites are blocked by governments due to political conflict. For instance, there is no way to access Google without using Virtual Private Network (VPN) in China, which using VPN is also considered a crime there. Although this sounds amazing at first, it does not change the operating fundamentals of a business, as it is subjected to local business regulations. Without a business license, most of the time, website cannot provide services, especially any financial-related services, to customers of a province, a state, or a country. Those who failed to comply with that might be subjected to lawsuit from the government themselves.
Having said that, it is true some places allow or even encourage crypto/blockchain businesses to open in their jurisdiction. It is also possible for anti crypto/blockchain places to reconsider their stand if citizens' demand are huge enough. However, the industry still meets many challenges, which we will discuss next time.
To be continued
References:
10) https://seekingalpha.com/article/4526976-meta-shows-concerns-with-apple-after-earnings-call 11) https://www.newyorker.com/magazine/2017/02/27/why-facts-dont-change-our-minds
12) https://cryptoticker.io/en/crypto-filter-bubble/
13) https://medium.com/certik/the-blockchain-trilemma-decentralized-scalable-and-secure-e9d8c41a87b3
14) https://xrpl.org/faq.html
15) https://explorer-xp.avax.network/validators
17) https://docs.ens.domains/
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