Where are We Headed? Web3 (Part 2)
A continued perspective on the comparative advantages of Web3
Hot damn. We’re less than a month into 2022 and things already are looking spicy. Crypto market caps are down +10% to start the year, the NASDAQ is creeping into correction territory, and the founder of Signal (an encrypted messaging app) kinda broke crypto twitter with this essay two weeks ago
I’d encourage everyone in this newsletter to read Moxie’s essay, regardless of where you are in the crypto/Web3 rabbit hole. You may not understand half of what he’s talking about, but I can say this definitively - you will learn something if you read this. I’d be remiss if I didn’t share this with this group, the link to the essay is here, and I’ve added it to my Web3 Reading List/Onboarding guide here (which contains a bunch of other intro/intermediate stuff as well).
Today’s article is focused on Part 2 of our exploration into the comparative advantages of Web3, and today we will be talking about censhorship resistance. Let’s dive right in.
Comparative Advantage #2 - Censorship Resistance
We all want our voices to be heard. A founding ideal of American democracy, is our freedom of speech. The first ammendement enshrines this freedom by stating that
Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.
Each and every day of our lives, we put this ammendment to good use. While at times, we have not lived up to this ideal (or for that matter the rest of our founding ideals); I personally believe that - the freedom of speech, and by extension, the free flow of ideas, information, and perspective has greatly contributed to our American experiment.
The free flow of our speech, which is the free flow of our ideas, allows us to consistently advance as a society and stand on the shoulders of giants. Just like an investment in the S&P 500 compounds over time, so do our ideas. The modern computer gave birth to the internet, the internet encouraged the development and adoption of mobile computing, and all three of these ideas influenced the development of blockchains. While freedom of speech is granted to individuals in the public sector, freedom of speech does not necessarily translate into private domains and namely, as it relates to our discussion, the internet. Why is that the case? Well, as Brett Pinkus, a litigator and intellectual property attorney, puts it, it is because private companies, “are not state actors and their platforms are not public forums.” he continues on to share that, “the overarching principle of free speech under the First Amendment is that its reach is limited to protections against restrictions on speech made by the goverment.”
Let me put it this way. Let’s say I invited you to my house. Hopefully you’re like, “daaamn dez - nice house.” Naturally I would be like, “thanks, glad you like it. You can do anything you like here, as long as you take off your shoes AND as long as you don’t say anything about Lebron James”
As you take off your shoes, you may wonder, "why tf does he care about me saying anything about Lebron James?” but odds are - you wouldn’t say anything about Lebron James.
Because you respect the rules of my house (my private property) and you know that if you broke the rules of my house, it’d be up to my discretion on whether or not to kick you out. No one goes into someone’s private home/property assumes they can say and do whatever they please, and then also assumes that they are welcome to stay after they say and do whatever they please. Our friend Brett here is saying that the same applies for private businesses. The people or entitites that own private property/businesses reserve the right to kick you off, or restrict your access when you don’t abide by their rules. A few examples across the spectrum to bring this to light:
Over the past few years, as the power of centralized internet businesses have grown, people have started to care more about the potential to be censored by centralized internet businesses. And it makes sense. It’s easy to take for granted how much we rely on companies like Google and Facebook for basic information in our daily lives. I depend on Google Maps to get from point A to point B. Mr Beast depends on YouTube to share his next crazy stunt. Nearly ~50M content creators depend on a whole host of platforms to make a living, and that number is only expected to grow over time.
On top of that, every time a content creator creates and distributes their content on the internet, in some shape or form they are exercising their freedom of speech. I think about it this way. Content is a form of art. Art is a form of expression, and expression is a form of speech. So whether you are an ASMR Youtuber or a comedian on Tiktok, you put yourself at risk by relying on a centralized platform, by relying on a centralized private business that can remove you at any time - to earn a living. This makes people uncomfortable, and people are starting to take notice. In 2021 two of the most influential Republican led state legislatures, Texas and Florida, introduced laws aimed at penalizing big tech platforms for removing users from their platforms. Now, let me be clear about two things:
These laws were blocked by federal judges, with one judge describing the law in Florida as, “riddled with imprecision and ambiguity” and
I believe these laws were introduced for political theater by political actors who have their own agendas (i.e accruing power)
But the fact that these two separate Governors - Ron DeSantis and Greg Abbott, who govern states with a combined population of nearly 50M people, tried to get these laws passed is telling. To me, it means they operated under the belief that a majority of their current or future constituents would at worst, look upon this decision favorably, and at best outright applaud this action. They add to their personal accomplishments as defenders of freedom of speech, and as combatants to big, scary, centralized tech.
We live in a time where a handful of private businesses have an outsized influence on our private lives. As more people fully accept the imbalance of power in this dynamic, more people become skeptical and concerned. What follows that concern, is the human desire to seek a redistribution of that power. For some, a blockchain’s censorship resistant qualities are exactly that redistribution of power. As Binance, the largest crypto exchange in the world, puts it:
Censorship resistance is considered to be one of the main value propositions of Bitcoin. The idea is that no nation-state, corporation, or third party has the power to control who can transact or store their wealth on the network. Censorship-resistance ensures that the laws that govern the network are set in advance and can’t be retroactively altered to fit a specific agenda.
But how, you might ask - does that work on a blockchain? And how does transacting or storing wealth in bitcoin relate back to censorship resistance?
I’m going to gloss over a lot of technical details, but in our first article discussing Web3’s comprative advantage I shared my perspective that a blockchain is a shared database that in theory removes the need for trusted intermediaries, and in theory cannot be retraoactively changed because it is shared across a massive group of people. The reasons why blockchains are censorship resistant is because they are shared databases, but what enables the database to be shared are a few component parts:
They have a consensus mechanism that is widely acceptable and provable and often enabled by forms of cryptography (Bitcoin uses proof of work, Ethereum is in the process of transitioning to proof of stake)
They have a process to enable digital signatures that operate as unique identifiers (these are the combination of your public and private keys, and your transaction messages)
Everyone owns a copy of the ledger, and there are no barriers to owning a copy of the ledger outside of having the necessary hardware (your computer), and following the rules (if you are a validator, a miner, or a staker)
If you understand those three components, you’ll understand (at a high level) why blockchains are censorships resistant. To frame it in the simplest way possible - blockchains are censorship resistant precisely because they are decentralized (i.e no single entity controls them), and blockchains are decentralized in large part due to the above three component parts. Now granted, because this is all relatively new technology blockchains are changing all the time, particularly the type of consensuns mechanism (i.e Proof of Stake vs Proof of Work) that is used to secure the database. If you want a good primer that explains this way better than I can, I’d watch this video here.
Secondly, while blockchains were originally concieved as a peer to peer version of electronic cash, a blockchain is at the end of the day just a type of database. What you choose to store in that database is irrelevant. It could be your Bored Ape Yacht Club NFT, it could be a PDF of the deed to your house. It doesn’t matter. The entire point is that you can store and you can share whatever you would like on a blockchain so long as you can store it in a digital format. There is no middleman to prevent you from accessing the database, because you own the database - you are the middleman.
Now, as I think about this comparative advantage - I can’t help but think that this is a “nice to have” and not a “need to have.” By being censorship resistant, blockchains offer a reality that our current internet infrastructure cannot so, understandably - they have a comparative advantage relative to their centralized counterparts. This is a win for blockchains, but just because you have an advantage in a competition, that doesn’t mean you’re going to win the competition. Being 7 feet tall is a fantastic advantage in basketball, but totally useless if you’re a Formula 1 driver. I think that while a lot of attention and focus goes into which Web3 companies are competing against one another, not enough attention is paid to how Web3 companies stack up against their Web 2 counterparts (Big Tech/centralized technology). And I’m not talking about how these companies stack up in the future, I’m talking about how they stack up today. In my opinion, if censorship resistance was truly the feature that people wanted, and wanted at scale - we would be seeing a more rapid shift from Web 2 companies that rely on user generated content and social interactions (i.e social media) toward their Web3 counterparts. This shift isn’t really occuring which leads me to believe two things
In the competition for time and attention from consumers, censorship resistance is not what people value most
Censorship resistance is not the winning comparative advantage for broader Web3 adoption at scale, early adopters may have intensely valued it, but as of today the early majority doesn’t give a shit
All in all, I’m of the opinion that censorship resistance is the stuffing of this technology movement called Web3. I’m glad it’s there and I’m happy that I didn’t have to pay anything extra for it, but I really stepped into this brave new world for a whole plate of twice baked, nap inducing, mozarella smothered mac and cheese.
That’s it for us this week. Let me know what you think, and if you have any questions!