The Pivot to Web3 Is Going to Get People Hurt | Hacker News Reader

The Pivot to Web3 Is Going to Get People Hurt

vice.com

46 pointshooande58 comments

This article makes some points outside of "Web3 is a buzzword/scam".

The idea is that if a startup involves tokens as a form of equity, investors can request that some of those tokens be set aside for them. Then those tokens can 1) be converted to cash without needing to find an acquirer or go public 2) be used to capitalize on negative non-public information about a company without it being insider trading. In addition if the company has a traditional exit the tokens can also be sold, allowing investors to profit twice.

The narrative in the article is that investors are pushing startups hard to incorporate a token pool into companies that have no need for one, in order to take advantage of these benefits. Being able to cash out tokens without an exit based on non-public info drastically reduces the risk and increases the upside. So investors can put money into many more long shot companies.

This seems very bad. It's centralizing tens of billions of dollars in the startup ecosystem around one technical concept that only has utility to the investing class. They can conveniently say it's about community and decentralization, when really it's a crude tool to reduce their investing risk.

If I had to guess, they will end up slowly reinventing the traditional investing system with all of the rules and regulations that come with it. But that will take years, and a lot of the investor class will benefit from low risk / high reward in the process. At least the smart ones will.

There is no productive innovation for society here. Only a new way for the rich to play with numbers until they get even richer.

> One entrepreneur described with great frustration that he had recently spoken to a founder at a VC mixer who was building a “decentralized” dinner reservation system. When he asked why a reservation system needed to be on the blockchain, the founder simply said: “It’s the future.”

Decentralization is electrolytes. It's what plants crave.

Joe: For the last time, I'm pretty sure what's killing the crops is this Brawndo stuff.

Secretary of State: But Brawndo's got what plants crave. It's got electrolytes.

Attorney General: So wait a minute. What you're saying is that you want us to put water on the crops.

Joe: Yes.

Attorney General: Water. Like out the toilet?

Joe: Well, I mean, it doesn't have to be out of the toilet, but, yeah, that's the idea.

Secretary of State: But Brawndo's got what plants crave.

Attorney General: It's got electrolytes.

Alternatively, the decreased risk may incentivize larger or more frequent investments and simultaneously draw in newer investors and make it easier for them to take the plunge.

It does allow the rich to get richer if the company does well, but it also facilitates startup funding and could very well be the difference between a startup getting the funding it needs to be successful or it getting denied due to risk factors.

> "So investors can put money into many more long shot companies."

Right but you phrase it like some horrible thing when it's a net positive for the investors, the business owners/folders, and the broader economy. Just because "the rich get richer" doesn't mean it's inherently bad and that others don't also get richer. It's not a 0 sum game.

Right now, IPOs are done at the whim of investment bankers. Look at the league tables [1], there's effectively a cartel of a handful of (mainly US) banks that basically dominate how corporations can raise money. They exert an amount of global control over this space that goes far beyond what would be required to fulfill the public interest of protecting small investors. European countries have tried (and largely failed) to establish players that could at least compete with the US banks and provide an alternative for European companies. If the second largest economic zone in the world doesn't manage to get a seat at the big tables, something seems off, and it probably is (see eg [2]).

Current web3 token issuance lacks regulation altogether (and is unsurprisingly dominated by scams), but there's no reason to be completely against the creation of new forms of financing, even if that requires effort in the form of new regulations.

[1] https://markets.ft.com/data/league-tables/tables-and-trends [2] https://en.wikipedia.org/wiki/Goldman_Sachs_controversies

>Right now, IPOs are done at the whim of investment bankers. Look at the league tables [1], there's effectively a cartel of a handful of (mainly US) banks that basically dominate how corporations can raise money.

This is true, but is it bad? Are there companies anywhere having difficulty raising money?

>European countries have tried (and largely failed) to establish players that could at least compete with the US banks and provide an alternative for European companies.

Yes, this is a problem with some regulation, and why "breaking up the banks" sentiment in the US is not thought through by proponents. Countries that allow their banking sector to grow will dominate (read: China).

>but there's no reason to be completely against the creation of new forms of financing

True, but no matter the mechanism, raising money from smaller/more investors will always be filled with scams. We're seeing that play out in Web3; people are losing their shirts because they have no idea what they're investing in or they're willing to risk money to get rich scamming the people coming in after them. There are higher costs of regulation with more investors.

All cartels exist mainly to the benefit of the insiders. I don't see why crypto should be inherently more prone to scams (after all, the use of funds on the blockchain is actually fairly transparent). Most instruments that are now considered traditional were at some point in their history ripe with questionable behavior (modern banking was arguably born when depositories ran out of gold and comforted customers with paper bills - funnily enough, that was also enabled by new bookkeeping/ledger methodologies). The antidote is sensible regulation, not demonisation.

This is a thing in crypto too. Getting listed on Binance is your dream if you are a shitcoin peddler. See any CZ tweet if you are not convinced

New markets, new players, of course. The thing is that Binance is not going to replace Goldman Sachs, but if it becomes a viable alternative at some point, then we would have more players overall.

I think there may be valid uses of blockchain and decentralized tracking of things but most of the stuff I hear is coming from marketers, etc.

An example would be actual real estate titles and deeds, not virtual real estate. This data set of who owns what piece of land could benefit from the features blockchain has as an open, decentralized database. You might eliminate a bunch of lawyer jobs and “title insurance” business in the process which is mostly bullshit anyhow. Decentralized is key because then it isn’t pay walled off behind some company. I didn’t mention money, tokens, or coins either because those aren’t really part of the use case. Public domain tracking of things is probably a solid use case in general but also might not be profitable. The decentralized part means the cost of maintenance is spread out more, maybe to the point of making it zero for a municipality.

Does this use case require blockchain? No, but it’s rare that any use case we come up with actually requires a certain tech stack to solve.

Who would mine those blocks? There has to be value in it for them. And there better be a lot of it — such a ledger would be an extremely appealing target for bad actors.

I've had the thought kicking around in my head for a while that the decentralized, difficult to alter nature of blockchain might have some use for the long-term preservation of provenance in the archival sense: Often figuring out whether something is legitimate or not requires tracking down its history of possession. This is/can be very messy, and I can see blockchain tech maybe eventually solving some of these issues.

But preserving things for future researchers doesn't earn $$, so I imagine it will take a few decades at least.

Why can't the described use case solved with some trivial database with digital signatures? Which is essentially sort of blockchain, just simpler. However, with or without blockchain you still need an authority that would say: "this is the legitimate blockchain, that one is not".

The real question is what kind of signals should one look out for to distinguish something that's really the next big thing from a giant bubble about to burst. Web3 could be either of the two.

However, lots of web3 ideas - all the ones I've read about lately, to be honest - don't pass the "I can see the value of that" test, compared to say M-Pesa which is a genuinely useful way to digitally enhance (or "disrupt" if you prefer) the financial system.

Well, we already have more than enough ways to pay for stuff digitally and most of them are already very easy to use, very fast and secure enough. Therefore I think it's relatively safe to say that blockchains, at least for payments, is not the next big thing.

If you work in the field, you could simply look out for things that are expensive, slow, hard, or all three and if someone is trying to fix thay.

One thing that comes into my mind are private cloud services. There aren't any good locally installable cloud platforms. There seems to be a rising need for private clouds and/or "user verifiable cloud services" aka. more or less "locally installable AWS" or a way to be sure that when you buy some cloud service, there is no way your data can leak anywhere at any point.

Speaking of verifications, guarantees and such, one interesting concept I've been looking into lately are zero knowledge proofs. Simply put, they would be a way for person A to prove to person B something about X, without revealing anything (sensitive) about X.

> There aren't any good locally installable cloud platforms.

What about Eucalyptus[1] for instance (no affiliation)? it's open source, can be installed locally, and specifically mentions compatibility with AWS.

I have personally used it with both official AWS and third-party tools to reproduce the deployment and use of an existing setup on AWS, and it worked very well for me.

[1] https://www.eucalyptus.cloud/

The quote about setting up a company for “an undertaking of great advantage, but nobody to know what it is” has never seemed so appropriate.

It might, if there actually was a pivot. I think most people are disinterested enough to really slow down any pivot.

Web3 could have been amazing without blockchain and crypto integration, since BitTorrent proves p2p is possible in a sane way.

> In late May, amid plunging crypto prices, one of Web3’s biggest institutional backers, the venture firm Andreessen Horowitz, announced it had raised a monstrous $4.5 billion crypto fund

If your college calls you in 2023 with a dire warning about budget shortfalls due to endowment non-performance, now you know why.

“Is going to”? https://web3isgoinggreat.com/

There is not going to be any pivot to Web3.

I'm willing to bet there won't be a pivot to web3 so I think we'll be OK.

Taking your money to the casino might make you richer.

Not doing so won't make you poorer.

It has always been so.

It is very sad, to see so conservative position of so famous organisation.

I see many problems in web3 conception, but they are technical problems, so could resolve if somebody really want to resolve.

For non-tech, web3 is not in any way different from any other new concept.

- Unfortunately, all pass the same way, with also typical obstacles, known for civilization for millennia.

For example, governments at least 10 years have enough information to make regulations, to use best from crypto community and make sector less attractive for thieves.

But instead, governments as usual use policy of limit and forbid, push crypto into criminal world.

There are only two ways to believe in W3: You cashed out during W2 and run low on cash or you were too young to experience W1/2.

An article so long to say so little... why am I still reading vice?

Before the rise of "Web3", I never would have believed that so many people would look at that stupid name and conclude that it is somehow inevitable or even a meaningful successor to what we had already. Whoever started calling it that is either very lucky or an evil genius; they somehow got a bunch of otherwise reasonable people to switch off their critical thinking and see a bunch of cryptojunk as something other than cryptojunk.

Everyone building some "crypto", "blockchain", or "Web3" thing claims they're creating some kind of value, and yet in all I've seen so far, they don't actually solve the real world problems they claim to be solving, and if you were to remove the speculators from the game then the whole thing would collapse. I just see one pyramid-shaped casino after another.

> Whoever started calling it that is either very lucky or an evil genius

In a world that is currently dominated by the effects of misinformation, I'd bet on the latter.

I think OP is overestimating the critical thinking skills of the population. That is why misinformation is so effective

> Whoever started calling it that is either very lucky or an evil genius

It’s aspirational at best. Web 2.0 wasn’t declared up front but rather was coined to describe a sweeping trend.

Web 2.0 was very much coined as a marketing ploy to sell conference tickets. We used to make fun of how little sense the whole thing made and to this day I have yet to see a coherent and meaningful definition of what Web 2.0 actually is. Still Web3 definitely got it beat on all that.

Web 3.0 was often used (again aspirationally) by the semantic web fans. The crypto folks probably should have gone for web4.

Well they did solve the real world problem of how to make payments for hostages and ransomware. Not sure crypto has solved much else though.

The charitable take is that they are mimicking VCs. VCs regularly give money to companies on vague missions like "disrupt the vitamin delivery industry".

The VCs don't really have a great understanding or confidence in exactly how the company will be profitable, but they are placing lots of bets hoping one will pay off.

So people promoting Web3 are taking a similar path of making a bet that crypto will be useful someday and hoping to get a piece of the upside.

Most crypto projects are craps.

But as someone living in China, where there is strict foreign currency regulattion, I have say crypto currency is one of the best investions in the last 15 years.

> Everyone building some "crypto", "blockchain", or "Web3" thing claims they're creating some kind of value, and yet in all I've seen so far, they don't actually solve the real world problems they claim to be solving, and if you were to remove the speculators from the game then the whole thing would collapse. I just see one pyramid-shaped casino after another.

The problem I see is "fake innovation", everyone with a new web3/crypto project talks about how their project is going to change the game but when you step back and look at the space as a whole, everyone is just doing the same thing with different variables.

Every new NFT project is just a copypasta of all the other NFT projects with different pictures, not to mention the sheer number of projects that are straight up copying Bored Apes with different animals.

And every new crypto project seems to have the exact same goal of making the investors a ton of money while also talking about how they are going to somehow save the world in the process.

Every new web3 game is some spin on the Metaverse, with NFT items and the promise that you can "play and make money".

There's no innovation in this space, every new "innovation" is just a rehashed old thing with different variables.

The zero knowledge stuff is actually fairly cutting edge (it's not often that academic papers make it into production systems within a few years).

> There's no innovation in this space, every new "innovation" is just a rehashed old thing with different variables.

TBF, much of Web 2.0 was exactly like this.

Lots of innovation came out of web2, from concepts that are ubiquitous today (tags, social profiles, the concept of a feed) to technologies that are very useful (nosql dbs, oauth, lots of web frameworks that were born due to the needs of web2 apps). It’s easy forget that the web1 was almost exclusively about consuming editorialized news and some shopping!

> What matters to investors is that Web3 is the hot new thing and the entrepreneurs are piling in.

Bingo. This is why Web3 still exists and people keep talking about it. It’s driven entirely by people trying to force opportunity.

> What matters to investors

I'm sure that there are some investors who feel like this, but "investors" is such a big group that it really doesn't make a lot of sense to speak about them as a homogeneous whole. There's the r/WSB crowd for sure, but there is also hedge funds, day traders, pension funds, family offices, sector funds, dividend focused investors, commodities traders, forex traders, distressed bond investors, HFT market makers, etc etc etc. Most of these groups are barely going to be impacted by Web3, if at all. The hype-driven FOMO crowd is a very small portion of the overall investing community.

Perhaps I'm misunderstanding but when someone says investors in regards to ycombinator/entrepreneurship/software they are referring to early stage startup investors, angel investors and investors in series A, or later rounds.

They're saying that the folks who invest in new software startups (like ycombinator) are a little too buzz-wordy, a little too influenced by "disruption opportunity" and as such are constantly trying to invest in "the next thing", and in this case, that is web3.

I think the counter to that is that many investors are trying to invest in good teams and not necessarily good ideas, because many (most?) unicorns look very different at $1B as they did at employee #1, with a very different product. Good teams with bad ideas can pivot and succeed, but bad teams with good ideas can still fail.

This is how capital formation works. Innovation has never been a game of investing _precisely_ the amount of money needed to create the next invention. It's precipitated by people throwing way too much money at everything, hoping to get something.

Pretending like this is some unique feature of crypto is no less disingenuous than those who say that web3 is inevitable.

Iced tea company rebrands as “Long Blockchain” and stock price triples

https://arstechnica.com/tech-policy/2017/12/iced-tea-company...

That shit was 2017. Can’t believe it’s almost five years already.

That must have let to the greatest call with investors: "Hey so we trolled the internet by renaming our company....and the value of your stock has tripled"

Hey, those people won. Imagine the people on the other side of that trade? Buying shares in an iced tea company because it added blockchain to its name?

I dabble a bit in DeFi, and try to keep up with some of the tech. But perusing my Twitter feed, I feel like I'm on another planet. So many pointless NFTs. Companies which I have no idea what business they're in, along with their "marketers" (often good looking young women). VCs investing in and talking about paradigm shifting startups for which I can't name a single customer. At least we could understand what Pets.com did.

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