The Middle Ground: Using Centralization Principles in Web3
Consistent errors in judgment, corruption, corporate greed and a plethora of disgraced officials have understandably ignited societal distrust and wide skepticism of governments and centralized points of authority. Cryptocurrency early adopters — or “degens” as they’re referred to within the Web3 community — incessantly call for a world rid of central banks and, in some cases, all traces of fiat currencies. It doesn’t take a fancy economics degree to see some of the benefits associated with a free market, however, the vast majority of degen ideals are impractical and, depending on the use case, introduce more complexity rather than eliminate it.
Decentralized infrastructures could drastically improve many aspects of our compromised financial system, but the journey to a decentralized economy is a long one and not without its impracticalities.
The Infrastructural Impracticality of Decentralization
The vast majority of modern blockchain technologies tout a value proposition built on the idea of decentralization, meaning that no one party or entity controls the network. Currently, when you want to send $1,000 to someone, you can either go to the bank and initiate such a transaction or use a popular money transfer application like Zelle, PayPal or Venmo. The middleman here has full control over whether those funds go to their intended recipient, requiring the sender to trust their bank to act in good faith.
The transfer of crypto assets functions just like these platforms, where a user can send funds to another if the recipient has shared their public key, similar to a username, with the sender. However, what’s happening under the hood is much different and allows for the removal of the centralized point of authority.
With blockchain technology, a network of computers called “nodes” compete to win said transaction through a lottery system. This system ensures that all transactions are handled the same way and that no one person can knowingly exploit the network. All transactions go onto a publicly viewable ledger so that no manipulation can occur after a transaction has settled — this is known in the industry as “immutability.” While the removal of intermediaries is significant progress toward a new digital economy, there are also some considerations regarding how applicable this framework is to everyday life.
Many blockchain protocols (the set of rules that establish the blockchain’s transaction structure) are energy-intensive and sometimes slower than rapid credit card transactions. This issue instantly detracts from the number of potential use cases and the rate of global adoption.
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Some networks such as Solana and Algorand have made distinct changes in how their algorithms work to address this issue, which is part of the wider “blockchain trilemma”: the challenge for a network to achieve decentralization, security and scalability optimally without sacrificing one for the other. Other networks have completely pivoted away from blockchain like Hedera, which uses a next-generation “hashgraph” algorithm powered by the likes of LG, IBM and Google. Blockchain giant, Ethereum, even dumped its original protocol standard in favor of one that’s more energy-efficient.
Not all blockchains are meant to solve the same issues and that’s why we need multiple. We also need time for the development and advancement of the industry to reflect the efficacy we know this technology could have in our daily lives. The ways in which we initiate cryptocurrency transactions currently are far too difficult for the average person to follow. Opening your cryptocurrency wallet while standing at the register to pay for avocado toast and a pumpkin spice latte while 30 people behind you are breathing down your neck is an anxiety-inducing endeavor that most people aren’t prepared for and, ultimately, don’t want. Until consumer finance products within Web3 are as usable as their Web2 counterparts, credit cards will continue to rule microtransactions.
The Middle Ground
As a Web3 junkie, I pray for a world where MetaMask is mentioned among today’s most popular money transfer applications, but I also recognize that the biggest value proposition that all new technologies need to have is convenience.
The best, most successful technologies are the ergonomic ones that make our lives more efficient. Blockchain technology could drastically improve the lives of the unbanked, as well as those looking to transfer large sums of money instantaneously. However, it’s not yet user-friendly by design, and thus, cannot replace our contemporary financial system in the developed world. From my perspective, crypto is one of the greatest engineering feats of this century, but its total addressable market (TAM) will only grow as fast as its user experience improves.
What we need right now is a healthy middle ground that demonstrates the synergy between the principles of both centralization and Web3 and that works for the masses. In practice, this looks like intuitive user interfaces luring in the early and late majority versus early adopters making futile efforts to push new users up the adoption curve. Resources must go into creating custody solutions that look more like the ones we’re used to. We must do away with seedless wallets and arbitrary alphanumeric domain addresses if we wish to eliminate friction.
While these tasks right now seem somewhat insurmountable, what’s important is that we have time. Recent price action and catastrophic blow-ups, in combination with the growing need for regulation, stand in the way of Web3 taking any meaningful step forward. Despite this, a step forward it will take.