/criticisms-of-web3

Criticisms of Web3

The purpose of this document is create a list of common criticisms of Web 3 and counter-arguments for each. Every counter-argument must have a valid source. Anyone can contribute to this doc with new criticims or new counter-arguments.

Proof-of-Work wastes a lot of energy

Counter-arguments

✔️ Bitcoin uses energy that otherwise would go to waste [1]

  • Sichuan has a massive overbuild of hydroelectric power in the last decade. Sichuan’s hydro capacity is 2x what its power grid can support, leading to lots of waste. This otherwise-wasted energy has been put to use mining Bitcoin.
  • There is historical precedent for this phenomenon. Before Bitcoin, aluminum served this purpose. To produce aluminum, it requires smelting bauxite ore. Because Iceland boasts cheap and abundant energy, smelting bauxite was a natural move. The ore was shipped from Australia or China, smelted in Iceland and shipped back to places like China for construction.

✔️ Bitcoin mining is a net benefit to the energy sector [2]

  • The age of the hardware determines the type of energy that is used. Older ASICs units use more intermittent renewables because the costs of running the hardware are lower.
  • Bitcoin miners can buy energy when energy is abundant and draw from the grid the rest of the time. This allows miners to monetize a renewable asset that would otherwise be wasted, while still maintaining generally high uptime.
  • Miners are signing deals with nuclear power plants [3]
  • Bitcoin miners are mining with waste methane which would otherwise be flared. This reduces emissions compared to the gas being flared.
  • Bitcoin miners are ideal candidates for “demand response” programs because they can deal with power outages without suffering adverse impacts to their business (unlike hospitals, factories, etc)
  • Bitcoin miners can serve as a source of “controllable load”, where they can dial up and down their energy consumption to a level the grid operator demands so that fossil-fuel plants don't need to used as much, resulting in lower overall carbon emissions.

✔️ We are 88% done with the Bitcoin mining process [3]

  • Miners spend a lot of energy because a majority of their revenue today comes from new Bitcoin issuance. Therefore, the benefit of mining Bitcoin outweighs the cost.
  • But in the future, this will change. Once all coins are issues, most of the revenue for miners will come from transaction fees only. This will lead to lower miner revenue and hence less energy expenditure.

✔️ Bitcoin’s energy consumption is more efficient than gold and traditional banks [4]

  • Traditional banking emits 1,368 Megatonnes (Mtoe) of carbon per year. Gold mining emits 144 Mtoe. Bitcoin emits 61 million Mtoe.

✔️ Ethereum and many other blockchains (e.g. Avalanche, Solana, Cosmos, Terra, etc) do not use Proof-of-Work

  • Ethereum's Proof-of-Stake consensus algorithm will use at least ~99.95% less energy post merge and is expected to consume ~ 2.62 megawatt (around 2100 American homes). [5]

Web 3 has a lot of centralized services (e.g. OpenSea)

Counter-arguments

✔️ Web3 network effects accrue as public goods on the blockchain, not with centralized services [6]

  • OpenSea and other "centralized" Web 3 services don’t own the goods. Users own them on the blockchain and have full control over them.
  • Users can easily switch services if those services start charging too much, inserting ads and algorithmic feeds, throttling their traffic, or mistreating them in other ways.[7]
  • There will be centralized services in Web 3, but the switching costs on Web 3 are much lower than Web 2 (e.g. 2% on OpenSea vs. 30% on Apple App store). [8]
  • By making data portable across centralized and decentralized services, Web 3 gives user more freedom and agency.

✔️ Decentralized alternatives to platforms like OpenSea are being created [9]

Most people don’t want to own their keys

Counter-arguments

✔️ There are innovative new solutions that make it seamless for users to "own their keys"

  • Web 3 auth combines Web 2's social login system with web 3 private key management, making it as easy for users to manage their keys without having to worry about storing seed phrases. [10]
  • Social recovery is becoming more mainstream, where users don't have to worry about storing seed phrases or hardware wallets securely. Instead, a user can choose at least 3 or more "guardians" (e.g. friends, family, etc) who can cooperate to change the signing key of the account. [11]

✔️ There are some countries where having the option to "own their keys" is a blessing

  • Having the option to hold your private keys is a big feature in countries that are both authoritarian and insecure, in which you can’t trust the government nor the banks (see this example).

Blockchain is a solution in search of a problem

Counter-arguments

✔️ Blockchain is already helping people from certain third-world countries

  • People living in countries with high inflation, high taxes, and authoritarian governments now have an option “exit” the system, and have a refuge against inflation and censorship.
  • Example: Argentina
  • If you provide services to a foreign country for $10.000, only $3.000 end up in your bank account.
  • Lots of freelancers and companies from Argentina are charging in crypto to avoid getting screwed by the government.
  • It’s an illegal but (arguably) ethical way to exit an unfair taxation scheme.
  • Crypto is a widely adopted way of saving and moving money in and out of the country.

✔️ Non-custodial wallets allow people to exercise their fundamental rights as citizens [12]

  • Governments around the world have the ability to financially censoring anyone. Without access to the financial system, people cannot exercise their rights as citizens. They are powerless.
  • Non-custodial wallets allow people to have permissionless access to a financial system.

✔️ DeFi adoption keeps growing

  • DeFi has grown significantly over the last year, from around $700 million in 2020 to an estimated $60 billion to $80 billion in TVL in 2021. [13]
  • Adoption is not a perfect measure of utility, but it does go to show that people are adopting DeFi in masses because they get some value out of it (i.e. permissionless access to returns)

✔️ Web 2 monopolies are a real problem [14]

  • The incentive structures of Web 2 companies requires that in order to continue growing and monetizing, the companies must extract data from users.
  • Web 3 allows ownership and control of data and value to be decentralized. Users own the data and value they create on the internet.
  • Tokens align the incentive of participants in the network to work together toward a common goal: the growth of the network and the appreciation of the token.
  • This fixes the core problem of centralized networks, where the value is accumulated by one company rather than collectively to the participants in the network.

✔️ Bitcoin is >10X lighter, faster, and more liquid than physical gold [15]

✔️ Cryptocurrencies are >10X the speed of wire transfers [16]

✔️ Ethereum has 10X'd the scale of crowdfunding [17]

Cryptocurrencies are used for illicit activites

Counter-arguments

✔️ The number of bitcoin transactions linked to illicit activities remains below 1% [18]

  • Bitcoin transactions are public and transparent. Any user can view the complete history of transactions on the network, making it an unattractice medium to faciliate illegal activity.

✔️ Physical cash is a more popular medium for illicit activity [19]

  • Using crypto for nefarious purposes leaves an excellent paper trail for prosecutors to lock in a conviction. Hence, physical cash is a far better medium for illicit activity.

✔️ Crypto exchanges curtail illegal activity as much as possible

  • Binance recently helped bring down a $500 million ransomware gang. [20]

✔️ Traditional banks have been shown to have immoral secrary laws and being facilitators of criminal activity

  • A massive leak from Credit Suisse exposed the hidden wealth of clients involved in torture, drug trafficking, money laundering, corruption and other serious crimes. [21]

✔️ Any tool can be used for illicit activites. That does not manke every tool inherently "bad"

✔️ Illicit is not always immoral

  • For people who live in a ************, doing something illegal may be morally right. e.g. selling services to a foreign country may be banned or made practically impossible by the ************ (e.g. Cuba).

NFTs offers no intellectual property protection

Counter-arguments

✔️ An NFT is a token that represents the certificate of authenticity [22]

  • Although they don't exist today, NFTs will evolve to have a readable standard for NFT rights - regular, commercial, non-commercial, public domain and so on. [22]

✔️ NFTs are an 10x improvement over the current approach to mainining intellectual property

  • NFTs are portable. Unlike physical art which is limited to its physical location, NFTs can be ported to any account on the blockchain in seconds.
  • NFTs are programmable. Unlike physical art, NFTs are token representations of art. These representations can be programmed into any smart contract and be used in many different ways (e.g. collateral, proof-of-identity, proof-of-ownership, etc)
  • NFTs allow for much more transparent royalty agreements since everything is "on-chain" and any account that owns an NFT is easily identifiable.

Contributors

Thanks to @lucas-janon, @mariavarvaroi, @gabsong for their help compiling research.