September 12, 2022

What is Web3 and what does it mean for bitcoin?

Whether Web3 succeeds or fails, widespread recognition of bitcoin as the best form of money will continue to grow.

David Waugh
David Waugh

Content Editor

What is Web3 and what does it mean for bitcoin?

Table of contents

What is Web3 and what does it mean for bitcoin?

Since bitcoin’s creation in 2009, it has cemented its place in history. It has risen from a digital asset traded by hobbyists to a global currency sustaining a market capitalization in the hundreds of billions of dollars. Individuals and institutions worldwide recognize that bitcoin is the best form of money ever invented.

Yet, economic progress is a paradox. Economist Joseph Schumpeter coined the term creative destruction to describe how economic growth can be a process of innovation that also destroys and displaces what came before.

With so much buzz about “Web3,” those who understand creative destruction naturally ask the question: Is bitcoin part of Web3? If not, is Web3 a force of creative destruction that will make bitcoin obsolete?

The roots of Web3

Web3 is a term coined by Ethereum co-founder Gavin Wood in 2014. It became a buzz word in 2021 when venture capitalists began devoting resources to it. 

Marc Andreesen, co-founder of prominent venture capital firm Andreesen Horowitz (a16z), stated that the promise of Web3 is akin to that of the early internet. According to Ethereum.org, the primary online resource for the Ethereum community, Web3 is 

a catch-all term for the vision of a new, better internet. At its core, Web3 uses blockchains, cryptocurrencies, and NFTs to give power back to the users in the form of ownership. A 2020 post on Twitter said it best: Web1 was read-only, Web2 is read-write, Web3 will be read-write-own.

This broad definition suggests that bitcoin can be complementary to Web3. It fits well with the “own” part of the “read-write-own” formulation. 

However, instead of integrating with bitcoin, developers of Web3 projects have consistently chosen to create new digital currencies, or tokens. In the practical, day-to-day world of Web3 today, users exchange crypto tokens that represent ownership stakes in services such as social media, file storage, finance, and gaming. CoinMarketCap lists hundreds of such tokens.

So, do these tokens threaten bitcoin? And if the next iteration of the internet runs on decentralized projects, each with a token, will they obsolete bitcoin, similarly to how Facebook replaced MySpace?

Hard Money is Hard to Replace

Even if Web3 projects are successful, its tokens will not replace bitcoin as the best and most widely-used digital money. 

Although these tokens and bitcoin are both “crypto," Web3 tokens do not have the fundamental qualities that make bitcoin the best form of money ever invented, which include bitcoin’s immutability, fixed supply, distributed consensus, deep liquidity, and global adoption. When you own Web3 tokens, you do not own sound money. Instead, you own something akin to a security in a particular project.

A Web3 token is essentially a new type of tech stock

In economic terms, shifting from MySpace to Facebook is relatively costless for the user, whereas storing hard-earned value in a token managed by a tech startup carries significant risk.

A Web3 project’s popularity does not say anything about whether its underlying token can serve as money. As Allen Farrington and Big Al explain in their essay Only The Strong Survive, tokenized projects face fundamental challenges by:

catalyzing value via utility instead of security, so far mainly opting for utility in financial applications, and hence adopting the moniker ‘DeFi’... this is likely to end in tears because the base layer is neither money nor secure.

The way that people choose which money to use is unlike the way they choose to use a particular service, like MySpace to Facebook. People store the value of their labor in money because they expect the money will continue to exist indefinitely and be widely used for trade.

Bitcoin has one job: To serve as money

There is demand for bitcoin because of its monetary qualities. Demand for Web3 tokens, on the other hand, is derived from the utility (or, in many cases, marketing buzz) of its associated project. Web3 tokens vary in supply, degree of centralization, and security.

Bitcoin succeeds at being money where these tokens fail because it was designed from the ground up to simply be digital money, and nothing else. It is a secure, decentralized payment network with a fixed supply of units. It has over a decade of history during which it has proven its security, reliability, and wide appeal. 

Is Web3 just another bubble?

Bitcoin is a revolutionary technology for ownership that, understandably, inspired many bright and passionate people to come up with new ideas. Sadly, most of these ideas have been more hype than substance. 

Only a few years ago, we were told that “blockchain” was Satoshi Nakamoto’s true innovation, and that bitcoin would soon be remembered as simply the first application of it. Blockchains were said to promise a fundamental change to how data would be handled by companies and governments. A decade later, bitcoin’s adoption continues to grow, while blockchains are nowhere else to be seen in daily life.

Next, “ICOs,” or “initial coin offerings,” were said to promise a fundamental change to how projects and businesses were funded. After a burst of hype and speculation during which many got rich and many others lost all of their money, ICOs were added to a growing list of failed crypto innovations.

Next, “NFTs” stole the spotlight, said to promise a fundamental change to how creative work is monetized. When the music stopped, many people found themselves the proud “owners” of ugly JPEGs that nobody needs or wants.

Will “Web3” be added to this shameful list, or will it bring real value to people? Nobody knows yet. One discouraging sign that Web3 proponents may be out to make a quick buck instead of make the world a better place is the fact that many refuse to use bitcoin as the token in their projects. After all, if they use a widely-recognized, neutral money like bitcoin, they can’t mint their own tokens and print money for themselves.

Bitcoin Doesn’t Care About Web3

Web3 might succeed, and it might not. Either way, Web3 tokens do not threaten bitcoin because the two are not in competition. Bitcoin is a proven technology designed to serve as an alternative to fiat money and central banking. 

On the purpose of bitcoin, Satoshi did not mince words. "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” was written by Satoshi on bitcoin’s genesis (first) block. 

Today, the bitcoin network is working as Satoshi intended. Whether Web3 succeeds or fails, the widespread recognition of bitcoin as the best form of money will continue to grow.

September 11, 2022

What is Web3 and what does it mean for bitcoin?

Whether Web3 succeeds or fails, widespread recognition of bitcoin as the best form of money will continue to grow.

David Waugh
David Waugh

What is Web3 and what does it mean for bitcoin?

Since bitcoin’s creation in 2009, it has cemented its place in history. It has risen from a digital asset traded by hobbyists to a global currency sustaining a market capitalization in the hundreds of billions of dollars. Individuals and institutions worldwide recognize that bitcoin is the best form of money ever invented.

Yet, economic progress is a paradox. Economist Joseph Schumpeter coined the term creative destruction to describe how economic growth can be a process of innovation that also destroys and displaces what came before.

With so much buzz about “Web3,” those who understand creative destruction naturally ask the question: Is bitcoin part of Web3? If not, is Web3 a force of creative destruction that will make bitcoin obsolete?

The roots of Web3

Web3 is a term coined by Ethereum co-founder Gavin Wood in 2014. It became a buzz word in 2021 when venture capitalists began devoting resources to it. 

Marc Andreesen, co-founder of prominent venture capital firm Andreesen Horowitz (a16z), stated that the promise of Web3 is akin to that of the early internet. According to Ethereum.org, the primary online resource for the Ethereum community, Web3 is 

a catch-all term for the vision of a new, better internet. At its core, Web3 uses blockchains, cryptocurrencies, and NFTs to give power back to the users in the form of ownership. A 2020 post on Twitter said it best: Web1 was read-only, Web2 is read-write, Web3 will be read-write-own.

This broad definition suggests that bitcoin can be complementary to Web3. It fits well with the “own” part of the “read-write-own” formulation. 

However, instead of integrating with bitcoin, developers of Web3 projects have consistently chosen to create new digital currencies, or tokens. In the practical, day-to-day world of Web3 today, users exchange crypto tokens that represent ownership stakes in services such as social media, file storage, finance, and gaming. CoinMarketCap lists hundreds of such tokens.

So, do these tokens threaten bitcoin? And if the next iteration of the internet runs on decentralized projects, each with a token, will they obsolete bitcoin, similarly to how Facebook replaced MySpace?

Hard Money is Hard to Replace

Even if Web3 projects are successful, its tokens will not replace bitcoin as the best and most widely-used digital money. 

Although these tokens and bitcoin are both “crypto," Web3 tokens do not have the fundamental qualities that make bitcoin the best form of money ever invented, which include bitcoin’s immutability, fixed supply, distributed consensus, deep liquidity, and global adoption. When you own Web3 tokens, you do not own sound money. Instead, you own something akin to a security in a particular project.

A Web3 token is essentially a new type of tech stock

In economic terms, shifting from MySpace to Facebook is relatively costless for the user, whereas storing hard-earned value in a token managed by a tech startup carries significant risk.

A Web3 project’s popularity does not say anything about whether its underlying token can serve as money. As Allen Farrington and Big Al explain in their essay Only The Strong Survive, tokenized projects face fundamental challenges by:

catalyzing value via utility instead of security, so far mainly opting for utility in financial applications, and hence adopting the moniker ‘DeFi’... this is likely to end in tears because the base layer is neither money nor secure.

The way that people choose which money to use is unlike the way they choose to use a particular service, like MySpace to Facebook. People store the value of their labor in money because they expect the money will continue to exist indefinitely and be widely used for trade.

Bitcoin has one job: To serve as money

There is demand for bitcoin because of its monetary qualities. Demand for Web3 tokens, on the other hand, is derived from the utility (or, in many cases, marketing buzz) of its associated project. Web3 tokens vary in supply, degree of centralization, and security.

Bitcoin succeeds at being money where these tokens fail because it was designed from the ground up to simply be digital money, and nothing else. It is a secure, decentralized payment network with a fixed supply of units. It has over a decade of history during which it has proven its security, reliability, and wide appeal. 

Is Web3 just another bubble?

Bitcoin is a revolutionary technology for ownership that, understandably, inspired many bright and passionate people to come up with new ideas. Sadly, most of these ideas have been more hype than substance. 

Only a few years ago, we were told that “blockchain” was Satoshi Nakamoto’s true innovation, and that bitcoin would soon be remembered as simply the first application of it. Blockchains were said to promise a fundamental change to how data would be handled by companies and governments. A decade later, bitcoin’s adoption continues to grow, while blockchains are nowhere else to be seen in daily life.

Next, “ICOs,” or “initial coin offerings,” were said to promise a fundamental change to how projects and businesses were funded. After a burst of hype and speculation during which many got rich and many others lost all of their money, ICOs were added to a growing list of failed crypto innovations.

Next, “NFTs” stole the spotlight, said to promise a fundamental change to how creative work is monetized. When the music stopped, many people found themselves the proud “owners” of ugly JPEGs that nobody needs or wants.

Will “Web3” be added to this shameful list, or will it bring real value to people? Nobody knows yet. One discouraging sign that Web3 proponents may be out to make a quick buck instead of make the world a better place is the fact that many refuse to use bitcoin as the token in their projects. After all, if they use a widely-recognized, neutral money like bitcoin, they can’t mint their own tokens and print money for themselves.

Bitcoin Doesn’t Care About Web3

Web3 might succeed, and it might not. Either way, Web3 tokens do not threaten bitcoin because the two are not in competition. Bitcoin is a proven technology designed to serve as an alternative to fiat money and central banking. 

On the purpose of bitcoin, Satoshi did not mince words. "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks.” was written by Satoshi on bitcoin’s genesis (first) block. 

Today, the bitcoin network is working as Satoshi intended. Whether Web3 succeeds or fails, the widespread recognition of bitcoin as the best form of money will continue to grow.