Why I’m Still Building in Web3

I started buying Ethereum again recently. Everyone is afraid of crypto and chasing AI, so I figured I should make like Warren Buffett and get greedy while fear is in the air. We’ve been through enough booms and busts to know that crypto isn’t going away, and in a world rife with AI deepfakes, there might be an important role for the blockchain. Crypto’s enabling technologies, like fast L2s, have been developed such that truly great consumer experiences might be around the corner. In that world, ETH is looking pretty cheap.

It’s easy to fluff shitcoins when the market is up—but what about people courageous enough to keep going even when it’s cold and dark? I wanted someone who’s still building during this crypto winter to provide a nuanced perspective, so I invited Kevin Kim to write for us. Kevin is a product manager at Phantom who previously worked at Meta and ran a blockchain startup years ago. He’s been a believer through many booms and busts. He’s also one of my oldest friends—we went to a high school summer program and college together. I think he’s a smart, nuanced thinker, and a good writer. So he’s the perfect person to bring us this piece today. —Dan

When one of the most infamous people in your industry is facing up to over 100 years in prison and another barely dodged jail time, it’s impossible not to reflect on your work. Even though FTX’s Sam Bankman-Fried and Binance’s Changpeng Zhao were guilty, I am still happily working in crypto. 

The last 12 months in my market of choice have been rough: the SEC has targeted popular cryptocurrencies like BNB, SOL, and MATIC as securities. The agency has sued major exchanges Coinbase and Binance for facilitating their exchange. In August 2023, Ethereum, the most robust NFT market, saw sales volume decline over 75% since February. The recent Stake.com hack of $41 million capped off a staggering $2.5 billion-plus lost in hacks since the beginning of 2022.

But none of these events impact the promise of web3. Despite the hacks and miscreant CEOs, it still is a major upgrade to the internet and the financial system. Beneath the wreckage is a stronger foundation than we’ve ever had: tens of billions in capital, an influx of world-class talent, and trading volume and stablecoin inflows at two-year highs. Many talented people have ignored the noise and continued building.

I’m one of those people. I’ve spent the last two years on the front lines as a staff product manager at Phantom Wallet, one of the rare web3 companies that reaches millions of users. I’ve been building in web3 since late 2017, spoke about laughably early blockchain UX at the 2018 Ethereum conference, and built one of the first integrated smart contract wallets in 2019. I’ve also built software for hundreds of millions of users at Pinterest and Facebook, so I bring a practical, human-centered perspective to the wild west of web3.

In this piece, I’ll reiterate why I’m still building in web3, and explore three trends that I believe are optimistic signs for the technology in 2023.

Financial sovereignty, technological progress, and cost savings

There are three reasons for which I continue to build in web3. The first is financial sovereignty. 

In February 2022, I visited Buenos Aires, where inflation currently runs at 138%. The country is likely to default on its International Monetary Fund loan for a tenth time. Most recently, the populace elected president Javier Milei, who has gone on record with pro-Bitcoin statements and committed to shut down the Argentine central bank. I spoke to many people for whom cryptocurrencies represented freedom—an alternative financial system separate from the dysfunctional government. 

In the U.S., we’re used to earning yield, affordable cross-border transfers, and constraints on inflation. These are luxuries for over half of the world population. Alternative financial services that are “always on” and don’t discriminate—because everything is automated in code—are the future.

The second reason is that web3 represents a natural progression of technology. It evolves what it means to “own” things beyond the limitations of today’s financial and legal systems.

Currently, there’s no way to tell a .jpeg apart from a copy/paste, or to add verifiable data like the time of creation to a file. That’s the goal of a non-fungible token (NFT), which enriches files with data that can’t be altered. By doing this, NFTs unlock “the ownership-ization of everything,” enabling the buying, selling, trading, and owning of items at more granular levels than we can today. Forget cartoon monkeys—imagine reselling an NFT that represents the remaining three months of your Adobe software license, or a percentage of royalties of Deadmau5’s newest song. And imagine doing so without high fees or mountains of paperwork. 

The last reason I continue to build in web3 is its cost savings. Web3 improves on web2 by running on code that is generally transparent and can’t be altered after it is submitted to a blockchain. Anyone can go on an “explorer” like Etherscan and read the code of a blockchain application. This allows high-stakes transactions like real estate or loans to be controlled entirely by unbiased code instead of slick middlemen—resulting in less overhead and lower fees for users.

Ethereum lending protocols like Compound and Aave take less than 1% in fees because the “rules of engagement” are set in code, not managed by a massive staff.  Filecoin, a decentralized AWS or Dropbox, uses code on the Ethereum blockchain to pool users’ idle computing power and reward contributors with tokens. The lack of overhead passes cost savings to consumers: 1,000 GB of on-demand storage costs ~$2.33, almost 20 times cheaper than Amazon S3 cloud storage.

My convictions are not just theories. There are several new trends in web3 over the past year that keep me in the industry. Let’s dig into them.

With ordinal NFTs, web3 arrives to Bitcoin

Bitcoin and its community have been criticized as boring, especially when compared to the Ethereum platform, on top of which have been built millions of NFTs and smart contracts. But this is changing—recent breakthroughs have enabled the “inscribing” of data or code to individual satoshis on the Bitcoin blockchain. 

A satoshi or “sat,” named after the founder of Bitcoin, is 1/100,000,000th of a Bitcoin. Each sat has an order in which it was mined. For example, the first satoshi of the first mined Bitcoin is number 0, the second is number 1, and so on. Since early 2023, developers have been inscribing everything from NFTs to alternative tokens to critical application code into satoshis. 

The biggest frenzy has been Bitcoin NFTs, or “ordinals,” named after the ordinal number theory used to enumerate satoshis.

NFTs are akin to web2 “files,” with stricter rules. Data on ownership and creation time is tracked transparently and can only be changed if the NFT’s public code allows for it. 

Over the last 30 days, the Bitcoin NFT ecosystem has experienced the largest sales volume in web3, outshining competitor ecosystems like Ethereum that have heavy NFT investments from celebrities and corporations. 

And this new space is innovating quickly—inscription storage and functionality improve monthly, with wallets and marketplaces raising tens of millions in funding. The current craze attracting capital is BRC-20 tokens, which enable the creation of Bitcoin-alternative tokens on the Bitcoin blockchain. 

The new era of Bitcoin has just begun.

Friend.tech brings social to web3

One oft-discussed use case of blockchain is social media. Having code on a blockchain would resolve concerns about transparency and nefarious data practices. Even Elon Musk considered starting a web3 social network before buying Twitter. Web3 also facilitates better micropayments than today’s internet, opening up new ways to monetize.

Social gambling app Friend.tech launched in August 2023 on Coinbase’s Base blockchain. Due to the improved infrastructure of web3, Friend.tech has been the most successful web3 social network to date—almost 900,000 users have paid fees to transact on its platform. 

On Friend.tech, users buy and sell tokenized “shares” of other users. Prices are largely derived from an algorithmic scale, which factors in demand for a user’s shares as well as their popularity on platforms like Twitter. A share can cost tens of thousands of dollars. Owning a tokenized share also unlocks access to chat with that user in the app. 

Users on friend.tech receive 5% of their shares’ trading volume as revenue, which is a greater percentage than other web3 consumer applications (Lens/NFTs)—let alone web2 (Twitter/Instagram). Almost $70 million went to users in its first month. Friend.tech is also friendly to less tech-savvy users, allowing users to sign up with a username and password instead of with more complex wallets like Metamask. 

Friend.tech isn't an original idea. BitClout, which launched in March 2021 and has been rebranded to DeSo, used the same playbook. Although it grew to more than 300,000 users and raised $100 million from VCs such as Andreessen Horowitz, the token price and momentum have long since fizzled out. 

One reason for BitClout’s demise is its onboarding practices—it added creators to the platform without their permission, landing them under legal scrutiny. But there’s another reason—web3 infrastructure has greatly improved, making Friend.tech’s job a lot easier.

While Web3 social is still early, it’s heating up. Copycat competitors on different blockchains have emerged to steal the hype. In turn, Friend.tech has even moved to punish users who join competitor platforms. 

Automated GPU sharing

Artificial intelligence is eating up Silicon Valley mindshare, and web3 could help unlock its impact. 

Using AI and machine learning to generate longform text, images, or video requires large amounts of computing power, or GPUs (graphics processing units). With web3, idle personal computers or server farms can perform computations without the need for a centralized company to manage them. The technology can automate paying out computer owners. These rules can be written in code, allowing the operators of these computers to pocket money without the need for middlemen. 

For example, after the last two decades of cryptocurrency mining, GPUs have become highly coveted. But, while approximately 270 million GPUs exist, only a small number are repurposed when they’re not in use. Centralized solutions like CoreWeave exist but are struggling to scale. Therefore, a lot of server farms and crypto mining operations are pivoting to generative AI, which requires tremendous computing power.

The largest such effort is from Render Network, a decentralized GPU-as-a-service platform from popular 3D graphics rendering company OTOY. The Render Network has used this service to contribute to major creations like the new Star Trek movie and Fortnite marketing materials.

Source: https://rendernetwork.com/.

AI is the biggest new movement in tech, but web3 could be what makes it feasible for mainstream adoption.

Web3 is the logical solution for the future

Blockchain-based solutions can often seem like overkill. Do we really need hundreds of thousands of computers synchronizing a database in order to automate lending agreements or send money across borders? Can’t we just make some changes to what currently exists?

But it’s important to remember that things can always be better. Current global financial technology is antiquated and powered by code from the 1960s.

And technology has never grown from pursuing the most ideal solution. While common standards like HTML, email, and JavaScript have many critics, people continue to use them because of their network effects; similarly, web3 and cryptocurrencies have almost 500 million users. Hundreds of thousands of YouTube videos, articles, and email newsletters teach people how to use wallets and marketplaces.

When the dust settles, it’ll be apparent that web3 deserves its name: it’s a logical progression of technology that pushes us into a fairer, more modern set of financial systems. Hope to see you on the other side.