Original compilation:
Original compilation:Alpha Rabbit Research Notes
The events at FTX have shaken the confidence of many. So, how did one of the largest cryptocurrency exchanges collapse so quickly? Why do similar crashes in the crypto world seem to keep happening?
At this time, we need to have a longer-term vision for the entire Web3 industry. This is not just a more forward-looking view about the future, but what we are going to talk about is the origin of Web3. What is the ins and outs of it?
As a long-term investor in Web3 and a board member (and individual shareholder) of Coinbase, one of the longest-running and best-known names in the Web3 space, we thought we could share some thoughts.
Web3 is a software-driven innovation which has its own built-in financial system. This composition is both an advantage and a disadvantage. How to understand? On the one hand, Token enables developers and users to contribute to open source protocols and participate in obtaining corresponding economic benefits, thereby bringing a strong developer community. This model is a positive aspect compared to the past way of software development, monetization and management. The negative aspect refers to that Token will bring about a cycle of ups and downs, boom and bust. Therefore, many people think that web3 is just a speculative attempt with no real substance behind it.
Regarding the view that "Web3 is just a speculative attempt", there are indeed many companies and individuals who have established Web3. The sole purpose of launching projects is to make profits through leveraged transactions and speculation, sometimes even outright fraud. These people quickly make money. Taking a lot of money, and such a phenomenon will only deepen the public's view that Web3 is just a speculative attempt.
Most of the Web3 crashes that most people have heard about can be traced back to Mt Gox, including the failures we have heard and witnessed this year, such as 3AC, Celsius, and Alameda/FTX. These crashes have all occurred in centralized companies. is in the business of trading, lending and speculating.
And many of the companies that failed were based outside the U.S., largely unregulated. The failure of these companies has given Web3 a bad name. Of course, we have also seen centralized companies like Terra fail, but their failures were due to design flaws, and in these cases the collapse happened in the open in a transparent manner, and I think that this model (due to design flaws), healthier than the collapse of centralized corporations.
Compare that to the regulated Web3 businesses operating in the US like Coinbase, Kraken, and Anchorage, and you'll see companies that play by the rules and behave properly have weathered these storm cycles. Coinbase's early innovations created a secure, easy-to-use, regulated fiat-to-crypto on-ramp, and a safe place to store crypto assets. Coinbase provides many important services that allow the Web3 ecosystem to grow and prosper.
The most important software innovations of the past decade, starting with the Bitcoin white paper 14 years ago, the emergence of open source software and decentralized protocols are the foundation of Web3, and these protocols have survived the recent market volatility. It is precisely because the software is not controlled by an overly centralized corporation, but by the open source community, with built-in safeguards, that they have increased transparency relative to today's technical and financial systems, which makes us full of confidence in the future of Web3. confidence.
These Web3 protocols are being actively developed, with industry builders all working together for gradual adoption by mainstream users. However, some key functions still need to be optimized. For example, according to the original architecture, the blockchain is public by default. However, I don't think this is suitable for most applications. Imagine if your email, banking and social data were public on the blockchain for all to see, would you 100% agree?
In addition, the current blockchain network is slow and complex, and its improvements to performance, scalability and privacy are carried out at the infrastructure level of the Web3 technology stack. Emerging technologies like zero-knowledge proofs and Rollups are starting to solve these problems without compromising decentralization. These breakthroughs are still in the early stages, and a small part of the developer ecosystem is gradually improving. This important behind-the-scenes work has not received any reports. But it is these developments that are preparing for the mainstreaming of Web3.
As the Web3 infrastructure improves in the future, the experience gap between storing assets on your own and storing encrypted assets on centralized entities will continue to narrow. More users will develop their own control over the custody of their own assets, and manage the keys to access their own assets. And this is how many Web3 users today interact with decentralized applications such as NFT marketplaces.
When Web3 becomes a credible alternative to Web2 for the masses, centralized companies like Facebook, Apple, Amazon, and Google will have to compete with Web3 over the way people access data. This will redefine how we use the web. Software development will be more open source and more composable. And traditional monopoly large financial institutions like banks and lending companies (including FTX) will no longer control our assets and cannot lend our assets arbitrarily without our permission.
Ironically, Web3 wants to put control of data and assets back in the hands of the people and away from the large centralized corporations. But the transition from Web2 to Web3 will be slow and messy, and many of the early Web3 companies are just copying what came before, and that's where the Web3 ecosystem is at risk and what we need to stay away from.
The implication of these recent events for policy makers should not be to think that Web3 is bad and must be restricted. Rather, it is bad to push innovation overseas.
We need trusted, well-regulated centralized entities to survive and thrive, and we need decentralized web3 protocols to thrive and provide a path to a fully decentralized web.
Both are possible, and the good news is that we are already on the path to both. We need to stick to this direction, provide a healthy Web3 development environment in the US, and stop pushing US users to risky and shady offshore companies, many of which will take unclear, unbalanced, and unfair policy actions .
Now is another difficult time for Web3, and you will see for a while about"cryptocurrency"negative headlines. But it's important for us to remember that these headlines are all about the speculative/deal part of Web3, and the more important underlying software innovation continues. And that's what we're looking forward to, as we continue to fund and support solid and responsible innovation in these foundational software.
