Web3 is yet to take off despite the hype

If the tech movement known as Web3 represents the internet’s next big gold mine, then why aren’t we hearing more about the truly useful applications that will be built on this new platform? And why aren’t more developers flocking to it to make their fortune?

Those questions hang uncomfortably over Web3 as the boom in crypto assets — which supposedly greases the wheels of the new applications this movement will create — rages on. Something like $1tn has leaked out of the crypto bubble since November, but there is still $2tn left. What are the ultimate uses of these digital assets that justify such a large number?

The case for Web3 rests on the belief that a blockchain-based technology platform will become the foundation for a new class of applications, with digital tokens mediating interactions of all kinds in a so-called “trustless” online world. There will be no digital gatekeepers to set the rules or take the lion’s share of the profits. Users will be in control.

So far, though, it is hard to discern mainstream uses for this technology. The main applications — non-fungible tokens (NFTs) and decentralised finance — are founded almost entirely on financial speculation and regulatory arbitrage. When the speculators take a bath and regulators decide it’s time to close the loopholes, what will be left?

A truism in Silicon Valley has always been that if you want to know where the next big ideas will come from, look to where the capital and the smart developers are going. In the case of Web3, there’s certainly been no shortage of capital. But relatively few developers have decided to hitch their fortunes to this particular bandwagon.

According to a recent study by Electric Capital, around 18,000 developers were working actively in the crypto world at the end of last year. That may sound like a lot. But as Tomasz Tunguz, a venture capitalist at Redpoint, points out, it is nothing next to the 16.4mn developers working in JavaScript, the main programming language for the current generation of web applications. Even the figure of 18,000 may exaggerate the true picture: the number of people spending at least 10 days a month working on Web3 is under 5,000.

One explanation for this is that too few developers have mastered the new languages needed to build decentralised applications. That, says Tunguz, limits the rate at which Web3 companies can grow, but the problem should ease as more tools are created that make life easier for engineers working in this field.

This is only part of the wider upgrade needed to make Web3 technologies more practical. Ethereum — so far the dominant blockchain for running decentralised apps — can handle a maximum of around 30 transactions a second, a bottleneck that has driven up transaction fees. Much of the money pouring into new crypto ventures in recent months has been directed towards the infrastructure needed to build and run blockchain-based apps.

Yet this revolution has already been years in the making. Ethereum was launched almost seven years ago. The first wave of Web3 developers drawn to crypto crested in 2018, when bitcoin first peaked. Only around a fifth of those people are still actively working in the field. The latest wave is nearly twice as big, but how many of these developers will keep the faith if another crypto winter sets in?

The delays might matter less if it was clearer what Web3 was actually for. When the world wide web emerged in the mid-1990s, it was possible to imagine activities of all kinds moving online for the first time, from shopping to watching movies. And that was before anyone even dreamt of giant new internet markets such as search and social networking.

The case for Web3 rests not so much on the “what” as the “how”. Decentralisation is itself said to be the draw — the chance to reinvent many of today’s online activities in a new form.

The idealism isn’t likely to last long if the mass of online users don’t see some tangible results, other than the chance for rampant financial speculation and meme-making. Also, today’s crypto fortunes are concentrated in the hands of relatively few, challenging the idea that this movement will spread wealth more evenly.

The financial conditions that fuelled the crypto boom are starting to recede, as inflation takes hold and interest rates start to rise. A similar situation brought an end to the dotcom bubble, laying waste to most of the start-ups, though a handful of truly groundbreaking companies such as Amazon, Yahoo and eBay lived on. So far, it’s hard to see who the Web3 survivors will be.

richard.waters@ft.com