Balaji's blog

Crypto and Web3

Web3 is all the rage now. The problem is that it is a mixture of genuinely interesting new technology, opportunistic money making schemes and scams. There is so much hype around this that a lot of non-technical folks are being drawn into it without understanding and are at risk of loosing a lot of money. I am going to attempt to differentiate some of these as best as I can.

The Promise

De-centralization and free from government control – that is the dream that is being sold. The web, unfortunately, has evolved to be controlled by a few tech giants like facebook, google, amazon and twitter. Of course there are general troubles of social media controlled by companies manipulating user behavior towards goal of profits. People who want alternatives that don’t push harmful content such as anti-vax or censorship find themselves out of choice. So, there is a want for a web free from ability to be controlled centrally. This is a very valid one.

Taking this too far. A lot of crypto things seem based on the libertarian movement and strong anti-government sentiments. People imagining that individuals can do Military, policing, common infrastructure and such have been fed some strange pills. They have also been fed some macho dream of doing this at gun point (at least in America) and this has so much bad effects.

So, is de-centralization good?

Well, yes and no. De-centralization of things to some extent is good and power needs to be taken away from large centralized tech companies, financial institutions and such but imagining some utopia where things run independently without structure/protection/control ignores all of human efforts at organization, systems of goverment and society over the millennia.

Anyone who thinks that digital records without real world enforcement has any value is trying to sell you some snake oil. Imagine that you have a block chain that stores a record that you own your house. Now some thugs come and kick you out of your house. If there is no government or police or legal system to enforce your ownership, what is really the worth of that block chain record?

The technology

The fundamental block chain technology is a good one. Interestingly, ethereum is the one that brought it forward as a technology platform and not Bitcoin. I am not saying buy ETH over BTC as that discussion is irrelevant.

I am very optimistic and all in for block chain technology. There are some serious problems now such as environmental impact, huge gas prices and more. But I am very optimistic that these will be solved and already L2 chains or POS based approach and more are making good progress towards it. My guess is that the technology will progress significantly in the next few years and we will have block chains that have the good of the distributed, immutable systems without the big negatives. Really looking forward to it.

The main use for this technology, as I see it really is akin to a Database but a distributed and immutable one. Really that is what it is. Other stuff are all fluff and indirection built on top of it.

Cryptocurrencies

As a human being, I do suffer from FOMO especially when I am on Twitter but when I am able to look at it critically, I realize that cryptocurrency is not a long term viable financial instrument, at least not a main stream one. Lots of problems with it. 

Totally unregulated currencies have a big problem, lack of protection. Imagine a scenario where retirees put their life savings in unregulated crypto currency and loose everything and have no recourse at all. Why do we think we still park our money in bank accounts with 0.1% interest rates? The FDIC insurance. For people who can afford to loose money, perhaps the risk is warranted but not for everyone. So, Bitcoin and Ethereum and all other cryto currencies themselves have a place as alternative investment vehicles but only with very high risk potential. There needs to be regulation at the exchanges (where Fiat is converted to Crypto) that certain level of risk tolerance should be proven.

So, what do we do?

Personally, I am all in for the technology but towards a path of it maturing as a data platform. I will invest a very small percentage of my investments in crypto, only what I can potentially loose and not put mine or my family’s future in serious jeopardy. Also, stay out of twitter crypto bros pushing crypto currencies. But stay in tune with block chain development.

The future is bright but we are in the fog of war and need to watch out for all the landmines.

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