Few people remember this, but back in the 90s, Web 1.0 was running on a fully decentralized infrastructure: anyone could host a server, and every computer on the internet would act as a relay between browsers and servers.
As people started building applications on the internet, a set of standards emerged to enable interoperability: websites were all built using HTML so that anyone would need a browser to view the data (and in fact, anyone could create a browser), emails were all in the same format and accessible via pop3 and IMAP protocols so that anyone could build an email client that could send and receive emails from other clients, chat rooms used IRC, calendars used CalDav, and so forth Effectively, anyone could build software that interacted with other existing software simply by virtue of following the same standard. In short, there was unlimited composability.
Composability is the ability to combine existing software to create new software, without needing permission from the original software developer. Composability has been extremely important for innovation in Web 1.0, because it enabled products to be built on top of other products, rather than having to reinvent the wheel each time. Launching a new product or service was cheap, fast and simple, resulting in the explosive adoption of the internet by consumers and companies everywhere.
On the flip side, standardization also meant that users could easily switch from one service to another, since all they had to do was transfer their data. As big internet companies started realizing that the more user data they had, the more they could improve their products, sell ads, and generate revenue, preventing users from going elsewhere became a critical priority. This led companies to create their own internal standards and close down third-party access to their product, in effect keeping users hostage by owning their data. This is the reason why you can’t communicate between WhatsApp and Telegram, or why you can’t use your Facebook profile on Twitter. The rare exception to these big internet companies opening access to their services was when they saw the opportunity to collect even more data from third-party services. Web 2.0 became synonymous with data tracking, proprietary formats, lack of interoperability, hyper-centralization, and un-composability.
The Web 3 Revolution
We are now at a critical juncture for the internet, where a new technology is radically changing the game: blockchain, and Ethereum in particular.
Despite what many people think, Ethereum has almost nothing to do with currency, and everything to do with composability. Ethereum is basically Web 3.0: a decentralized infrastructure where all data and applications have been standardized. Tokens are standardized fungible digital assets, NFTs are standardized non-fungible digital assets, smart contracts are standardized applications running on blockchains, and so on. We will likely see more and more Web 3 standards emerge soon around DAOs, marketplaces, exchanges and other common usecases.
Combining these standards with the fact that everything is open source means that, by design, Ethereum maximizes composability: every app can be used as a building block for another app. This creates a virtuous cycle of innovation, where the more apps are built, the easier it is to build new apps.
This is the reason why I am so bullish on Ethereum: you just can’t catch up with the pace of this ecosystem. There are too many developers on Ethereum, building too many apps. There might be some use cases that other blockchains can do better, but most likely these will end up having to bridge to Ethereum anyway to benefit from composability.
I believe we are just getting started with Web 3 and Ethereum, and we haven’t even seen the full capacity of what it is capable of enabling, just like we hadn’t seen anything yet in 1993 with Web 1.0 or in 2005 with Web 2.0. And the best way to choose which project to invest in is to ask yourself: does it compose?
Rand
If you would like to invest in deeptech and share dealflow, subscribe to my newsletter on Substack, or ping me on twitter!
Also published on: https://randhindi.substack.com/p/the-real-value-of-ethereum