Despite the hype, Web3 has yet to take off

If the tech movement known as Web3 represents the Internet's next big goldmine, why aren't we hearing more about the truly useful applications being built on this new platform? And why aren't more developers flocking there to make their fortune?

These questions hang uncomfortably over Web3 as the crypto asset boom – which is said to be greasing the wheels of the new applications this movement will create – rages on. About $1 trillion has flowed out of the crypto bubble since November, but there is still $2 trillion left. What are the ultimate uses of these digital assets that justify such large numbers?

The case for Web3 is based on the belief that a blockchain-based technology platform will become the foundation for a new class of applications where digital tokens mediate interactions of all kinds in a so-called “trusted” online world. There will be no digital gatekeepers setting the rules or taking the lion's share of the profits. Users will remain in control.

However, so far it is difficult to see mainstream applications for this technology. The main applications – non-fungible tokens (NFTs) and decentralized finance – are based almost entirely on financial speculation and regulatory arbitrage. When speculators take a bath and regulators decide it's time to close the loopholes, what's left?

A truism in Silicon Valley has always been: If you want to know where the next big ideas are coming from, look where the capital and smart developers are going. In the case of Web3, there was certainly no lack of capital. But relatively few developers have chosen to stake their fortunes on this particular move.

According to a recent study by Electric Capital, around 18,000 developers were actively working in the crypto world at the end of last year. That may sound like a lot. But as Tomasz Tunguz, a venture capitalist at Redpoint, points out, it's nothing next to the 16.4 million developers working on JavaScript, the main programming language for the current generation of web applications. Even the number of 18,000 may exaggerate the true picture: the number of people working on Web3 at least 10 days a month is less than 5,000.

One explanation for this is that too few developers have mastered the new languages ​​required to build decentralized applications. That, says Tunguz, limits the speed at which Web3 companies can grow, but the problem should diminish as more tools are developed to make life easier for engineers working in the field.

This is just part of the broader upgrade needed to make Web3 technologies more practical. Ethereum — previously the dominant blockchain for running decentralized apps — can process a maximum of about 30 transactions per second, a bottleneck that has driven up transaction fees. Much of the money flowing into new crypto ventures in recent months has been put into the infrastructure needed to build and run blockchain-based apps.

But this revolution has been years in the making. Ethereum was launched almost seven years ago. The first wave of Web3 developers interested in crypto peaked in 2018 when Bitcoin peaked for the first time. Only about a fifth of them are still actively working in the field. The recent wave is almost double that size, but how many of these developers will keep the faith when another crypto winter sets in?

The delays could be less significant if it were clearer what Web3 is actually intended for. When the World Wide Web emerged in the mid-1990s, one could imagine activities of all kinds moving online for the first time, from shopping to watching movies. And that was before anyone even dreamed of massive new Internet markets like search and social.

The case for Web3 relies less on the “what” than on the “how.” Decentralization itself is supposed to be the appeal - the chance to reinvent many of today's online activities in a new form.

The idealism likely won't last long if the masses of online users don't see tangible results, beyond the opportunity for rampant financial speculation and meme-making. Additionally, today's crypto assets are concentrated in the hands of a relatively few, challenging the idea that this movement will distribute wealth more evenly.

The financial conditions that fueled the crypto boom are beginning to ease as inflation takes hold and interest rates begin to rise. A similar situation ended the dot-com bubble and left most startups in ruins, although a handful of truly groundbreaking companies like Amazon, Yahoo, and eBay survived. So far it's hard to see who the survivors of Web3 will be.

richard.waters@ft.com