Is Decentralization of The Internet a Reality or Utopia? by@letacapital

Is Decentralization of The Internet a Reality or Utopia?

The advent of Web 3.0 has been predicted for several years, but the new iteration of the Internet has not been put into a common practice yet. In the Web 1.0 era, there were no platforms, and therefore no censorship, no specific laws, no rules. Web 2.0 refers to worldwide websites which highlight user-generated content, usability, and interoperability for end users. Web3.0 promotes decentralized protocols and aims to reduce dependency on Tech Giants. The average user spends most of his time on transnational online platforms, for example, Google has 90% of the global search engine market.
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LETA Capital is an early-stage VC firm investing in Eastern-European founders who build global IT companies.

Today web3 meets serious challenges. For instance, existing blockchains are not sufficiently decentralized and that is quite a problem. In this article let’s recall the generations of the Internet, elaborate on the importance of people’s trust in technology corporations and come to a conclusion whether decentralized services will replace big tech leaders in the nearest future or not.


The advent of web 3 — also known as “web3″ or “web 3.0″—has been predicted for several years, but the new iteration of the Internet has not been put into a common practice yet.

Сorporations invest billions in the metaverse, NFT, and so on, while Elon Musk thinks web 3.0 is more of a “marketing buzzword” than a reality. So let’s find out if decentralization of the Internet, the key feature of web 3.0, is a new reality or just an a priori failed idea.


What is a decentralized internet

Web 3.0 promotes decentralized protocols and aims to reduce dependency on tech giants. To understand the concept of web 3.0 we should look through the previous iterations of the Internet.


Web 1.0

Web 1.0 is a retronym referring to the first stage of the World Wide Web’s evolution.

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Key features of web 1.0


  1. Decentralized. Web pages were hosted on personal computers, there were local networks that united and formed the Internet. Yes, this was decentralization before decentralization went mainstream.
  2. Unregulated. In the web 1.0 era, there were no platforms, and therefore no censorship, no specific laws, no rules. Personal web pages, where everyone could post whatever they wanted, were common.
  3. Difficult to use. Creating your site was expensive and difficult, which limited the number of content creators. Little thought was given to design and usability, and personalization was out of the question. For example, in the early 2000s there were few images on the sites, and instead of video clips there was GIF animation. For the most part, the sites were static text pages. And their design today may seem strange.


Old versions of Amazon and Coca Cola websites

Old versions of Amazon and Coca Cola websites



Web 2.0

Web 2.0 refers to worldwide websites which highlight user-generated content, usability, and interoperability for end users.


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Key features of web 2.0


  1. Сentralized. The average user spends most of his time on transnational online platforms. For example, Google is estimated to have about 90% of the global search engine market. And Facebook holds 75% of the social media market. Personal web pages are being replaced by social media accounts that can censor content. Even physically, most of the cloud services are owned by a few companies. All this forces us to trust information to corporations.

  2. User-friendly. Сentralization brought ease of use and a low barrier to entry. You can now post a photo or send a text message in a few clicks. Sites greet the user with a beautiful and user-friendly design.

  3. Data-driven. Platforms have quickly realized the value of user data. They collect data and use it for their own purposes.


Web 3.0


Web 3.0 is said to be the new wonderful Internet, which will take good usability from web 2.0, and eliminate negative aspects: the ubiquitous government regulation and the corporate power, seasoning it all with cryptocurrencies and NFTs.


The concept of web 3.0 lies in the decentralization (here we go again) of the network — the emergence of platforms not controlled by corporations, probably based on blockchain technologies that will ensure data confidentiality, while maintaining ease of use.


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Some of the web 3.0 key features:


  1. Data ownership. Personal information will belong to individuals and one will be able to decide how he wants his data to be collected and stored, and if and when he wants to sell it, instead of companies collecting it for free.
  2. Сryptocurrencies. It is assumed that cryptocurrencies will play a key role in web 3.0. An example is any application running on a certain blockchain and using a certain token necessary for correct functioning.


Why is everyone talking about web 3.0?


Everyone might have their own answers, but a common thesis is that people are tired of not being the owners of their virtual lives. In today’s Internet, all user data is concentrated in the hands of a few companies. For example, Google is estimated to processes approximately 100,000 search queries every second. The collected information is mainly used in search advertising. In 2021, search advertising brought Google nearly $150 billion. And of course, such huge amount of data is not always possible to protect against hacking. Several high-profile cases in recent years have highlighted this issue.


For example, 700 million of LinkedIn users data was posted on a dark web forum in June 2021, that impacted more than 90% of company’s user base. In April 2019, it was revealed that two datasets from Facebook apps had been exposed to the public internet. The information related to more than 530 million Facebook users and included phone numbers, account names, and Facebook IDs.


Theoretically web 3.0 should redistribute the resources concentrated in one hand, and remove the need to trust your data to companies. Why hasn’t the new internet taken over the world yet?


Challenges

However, something interferes with society on the way to a bright decentralized future of web 3.0, because we are still “signing in by Google”, and personal data continues to leak year after year.


  1. Usability The first point with decentralized services is that they are more expensive and more difficult to develop than standard web 2.0 ones, and in terms of usability they are again more difficult and confusing. In addition, distributed systems in most cases are slower than the conventional ones. For the average user, convenience and speed of interaction are more important, because lots of people are happy to post personal data on their pages in social networks in the public domain and care little about confidentiality.

  2. Chaos Web 3 threatens to be a true chaos. Censorship of information is not always negative. Now most platforms have rules and restrictions by which content is moderated. In a decentralized system, it is much more difficult to find and punish those responsible for harassment and scam content. You need to build really democratic institutions inside the system to agree on a certain code of conduct and avoid its violations (or at least make it unprofitable to violate it).

  3. Are they actually decentralized? Decentralized systems are decentralized only in technological approach. For example, The top 9% of accounts own 80% of the market value of NFTs on the Ethereum blockchain, and Bitcoin is even more centralized: the top 2% of accounts own 95% of the $800 billion worth of bitcoin. 0.1% of bitcoin miners are responsible for half of all mining. Moreover, now 71% of fully synchronized Ethereum Mainnet nodes are hosted commercially, and almost half of them are on AWS. Isn’t that exactly what you struggle to defeat, guys?

  4. Technical part

    Each node of a decentralized system must store a copy of the blockchain, then if a decentralized system is the entire Internet, then how much memory is needed to store all the information? The amount of video on YouTube alone is measured in petabytes, while the hard disk of an ordinary computer is no more than a terabyte. The solution to this problem may be some special servers of sufficient capacity, but then let’s go back to the web 3.0 scheme. It will get this look.


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And this is no longer a decentralized system (according to Vitalik Buterin’s Medium).


Is decentralization only about blockchain?

The idea of ​​decentralization is not new. There are existing decentralized systems that do not use the blockchain. For example, Torrent. Due to the fact that different fragments of files are used by many users, the safety and integrity of data is achieved. Another example (which has already been described above) is web 1.0 itself, where local networks united and formed the Internet.


But if you look deeper, the problem that web 3.0 is supposed to solve is related to the global problem of people trusting each other. Trust can be provided by technologies: open source, Proof of work/stake, decentralization — this is how the blockchain works. But there is another way: trust can be gained through brand popularity. According to the Interbrand, the most valuable brands are Apple, Amazon, Microsoft, Googles. And it affects brand trust. According to the Morning Consult’s Most Trusted Brands, 74% of Americans trust the average major company to deliver consistently on what they promise. Just 20% say they don’t trust brands to deliver on what they promise. And the most trusted brands globally are Google, PayPal, Microsoft, YouTube, Amazon. Tech giants. Again. Thus we come to the conclusion.


When will the decentralized Internet transition happen?

Decentralization is a complex mechanism. Ceteris paribus, centralized systems are cheaper and simpler, and brands maintain a high level of user trust in themselves.


Therefore we might assume that the decentralized services will not soon replace tech giants. These systems will exist somewhere nearby and solve other problems, perhaps financial or identification issues. But the Internet we are used to will probably remain on the same technologies, in the same browsers, search engines, social networks, and will be owned by established big tech leaders, which are not going to give up their positions in the nearest future.



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by LETA Capital @letacapital.LETA Capital is an early-stage VC firm investing in Eastern-European founders who build global IT companies.
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