Web3 has evolved into a movement that envisions a radically new era of the internet, with a focus on a more decentralized, or for that matter, a more democratized internet. The overarching aim of Web3 is to populate the internet with user-owned economies powered by protocols that offer structured incentives for network nodes, participants, and developers alike.
Having said that, Web3, while being a bold approach, has run into a few problems. Let us observe what these challenges currently are.
In its entirety, the Web3 narrative has been genuinely shaped by the blockchain and crypto phenomenon. Web3 has come to espouse crypto assets, smart contracts, DeFi, NFTs, and metaverses. However, to make this new technology usable, Web3 protocols have coalesced around centralized platforms to run their servers and iterate on any new functionality that emerges. Examples of such intermediate centralized platforms include OpenSea, Etherscan, and MetaMask, which rely on Infura, a backend and Infrastructure-as-a-Service (IaaS) provider.
The reality is: Most Web3 protocols are slow to evolve and reliant on centralized platforms to iterate faster. The result is that so-called decentralized protocols and applications are based on centralized infrastructure, which makes them hardly a reliable contender for a new decentralized internet. This reality has also been pointed out by Moxie Marlinspike, the founder of messaging app Signal, in a highly referenced article a while ago.
Another argument was raised by Jack Dorsey, a leading proponent of Web5, that the influx of venture capital and corporations into Web3 has moved the power dynamic away from users to these organizations. This becomes clear when you consider that VCs generally hold big amounts of early-token investments in these Web3 protocols. However, this criticism is called into question by some of the most influential VCs in the Web3 space, arguing that Dorsey’s arguments are wrong on a factual basis. Chris Dixon, for example, general partner at the venture capital firm Andreessen Horowitz, argues that only a small minority position of Web3 protocols is owned by VCs.
Scalability has proven to be a big issue for blockchains and a big impediment to Web3 adoption. A long-term solution to the blockchain scalability trilemma has so far been elusive. The scalability trilemma states that out of security, decentralization, and scalability, only two out of three of these characteristics can be met by a public blockchain at once.
As a consequence, many Web3 protocols have compromised decentralization and security by prioritizing scalability. This way, these projects might be faster and can deliver low-cost transactions but their approach leads back to centralization though. We have seen several Web3 solutions being hacked because they are not decentralized sufficiently enough. Other Web3 applications have been shut down at times, delivering insecurity and uncertainty to users.