The Centralization of Decentralization – Why Blockchain Isn’t Being Used To Eliminate Platforms

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You may have heard someone say this before. If so, I’ll beat you over the head with it (and hopefully add another perspective).

Web3 isn’t eliminating centralization.

According to Ethereum.org, “Web3 is a vision of a new, better internet… using blockchains, cryptocurrencies, and NFTs to give power back to the users in the form of ownership.”

This “Web3” movement is built on a concern that platforms have too much power. That “a handful of centralized entities have a stronghold on large swathes of the World Wide Web, unilaterally deciding what should and should not be allowed.”

This is true. If Google decides to censor something, it’s gone. If Amazon Web Services deplatforms you, good luck.

The theory is that through decentralization (distributing ownership and control among builders and users), we can bring about a new age of the web without platforms, where people can have ownership and control over everything they do.

There’s only two small problems:

  1. Web3 is highly inefficient and not fully decentralized
  2. People... like platforms?

Web3 isn’t decentralized

By “decentralized,” people today usually mean “it uses blockchain.”

It did not always mean that. There are many amazing resources that are actually decentralized and do not use/existed before blockchain.

For instance, Federation is a non-blockchain method of achieving decentralization enabling a service to join disparate servers together and gain the benefits of a "single" centralized" platform.

But most current Web3 companies are powered by blockchain. Developers have attempted to put everything on the chain, from currency and art, to games and medical records.

Companies now exist doing all of these things:

  • Coinbase helps you purchase and store cryptocurrencies.
  • Binance is a popular crypto trading exchange.
  • Metamask is a powerful wallet that stores your personal data.
  • OpenSea lets you purchase NFTs.
  • Alchemy helps you manage the blockchain through APIs.

These companies are the pinnacle of the Web3 movement, and they’re accomplishing amazing things. But they‘re also just new platforms, centralizing the “decentralized” web.

They may use a distributed blockchain database, but they’re still fundamentally web apps running on traditional web servers.

They’re still trying to gain massive market share through network effects. For example, OpenSea owns the NFT space, processing 84% of transactions last December.

Why?

Because platforms are good. And both users and investors like them.

Users like platforms

Here’s an anecdote:

Someone’s Coinbase wallet was hacked and their Bored Ape NFTs stolen. Distraught, they contacted OpenSea on Twitter for help. Because OpenSea effectively controls the NFT market, they froze any further attempts to resell the NFT so the bad operator had no choice but to sell back to the original owner.

Without the convenience and customer support that comes with platforms, the web is often a worse experience. Moreover, it just isn't practical to expect the majority of people to run their own nodes.

There are a lot of things that can easily be self-hosted, like mail servers. People choose not to for a reason.

I’m a huge advocate of open-source. I often self-host when possible. But I recognize that I’m an incredibly enfranchised developer.

The average person just doesn’t have the time or energy to care about this. They want something that “just works”.

However, if someone successfully creates a completely decentralized platform that’s extremely simple to use, that could change.

I generally find “it’s early days” to be a weak argument for why something people tout as the future doesn’t follow through on promises, but the reality is that it truly is “early days” for this space.

At the moment, however, I’m inclined to believe users prefer centralized platforms.

As I mentioned above, decentralized alternatives have existed to common applications (such as the Twitter-like social network Mastodon) for years. People just choose not to use them.

It’s difficult to see why powering those alternatives with a different decentralization technique would suddenly change that user behavior.

Investors like platforms

If I’m a venture capitalist, I want to invest in the company that’s going to control an industry and take advantage of its market dominance (often by exploiting users in some way) to increase value for shareholders.

This is best accomplished through centralization and monopolization. It’s hard to reconcile that with the vision of Web3 not being controlled by large companies.

To an extent, you can even see this with Ethereum itself.

Technically, we can create any number of different chains. But it’s in the interest of every person who has invested in Ether and every person who builds on it for Ethereum to be the dominant blockchain. The same is true for Bitcoin.

And with proof-of-stake, while the system is technically decentralized, it incentivizes a system where a few individuals control the chain.

Web3 platforms have potential

Our current internet has flaws. Platforms require you to conform with their rules, and own your data.

But as the centralization of decentralization indicates, people prefer platforms.

People do not want a fully decentralized web. Most people don’t even know what that means.

Decentralization is fantastic in theory, but it fails to consider the practical problems that come with it or what non-programmers actually care about with their time and money.

We’re not returning to a golden age of the web, because it wasn’t really ever decentralized in the first place. But that doesn’t mean Web3 can’t provide value.

Web3 has potential to create new platforms that exist with different structures and improved incentives.

The ideals behind this movement are not inherently bad. It would be incredible if instead of harvesting user data, we created open platforms that share value with users directly.

Platforms drove mass adoption and accessibility for Web2, and they’ll do the same for Web3. I believe the openness/ownership angle of the movement is extremely intriguing.

If we embraced open source as strongly as blockchain, many concerns people have with current platforms would be nullified.

We could create a world in which trust is built online not only by building technologies that are “trustless,” but by having companies offer users increased transparency and treating them well to earn that confidence.

Web3 may not be on track to decentralize the web, but it could still disrupt it.

Thanks for reading :)

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