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Around the Block #1: The biggest challenge of the consumer web — and how crypto is poised to solve it

Introducing Around the Block, a new blog from Coinbase that aims to provide context on the constantly evolving cryptocurrency landscape through explanations of new protocols, key ecosystem developments, and more.

Coinbase’s mission, vision, and strategy centers on conviction that cryptocurrency will help enable an open financial system. Crypto represents a paradigm shift in technology, which we believe will enable new, innovative applications to emerge across several categories.

This post aims to explain one category: the potential to “Decentralize the Web.” This is a loaded term, so let’s unpack this piece by piece.

What’s wrong with the web today?

It may be surprising when someone asks what’s wrong with the web given how central it is to our lives, but the internet has fallen short of its original vision in two key ways:

First, for a variety of reasons, the consumer internet has primarily embraced ad-based business models. This has led to a proliferation of obtrusive ads, clickbait articles, and services that optimize for capturing personal data which can be repackaged and resold at will (and increasingly in nefarious ways e.g., Cambridge Analytica).

Second, the internet began as a collection of community-controlled services built on open protocols, but centralized services with seamless user experiences soon emerged, tapping into native network effects to quickly grow and outpace open source development. This has evolved to produce a small set of powerful platforms who now control most of our interactions on the web (GAFA — Google, Amazon, Facebook, and Apple).

This evolution also introduced a centralized element of control where new companies came to rely on centralized platforms for access to large audiences, trusting they would not restrict their growth, censor their products and services, or otherwise change the rules from beneath them. But this inevitably occurred as these startups grew threateningly large (there are many examples).

The result is stifled innovation where entrepreneurs are wary of building on top of centralized platforms, coupled with large companies controlling or affecting a disproportionate amount of our lives.

Why would decentralizing the web fix this?

In both cases, centralization restricts innovation and enables platforms to abuse our data and privacy. A web built on a decentralized base prevents any single-party from disproportionate control, and thus can re-introduce open innovation and restore data and privacy rights back to the individual.

How can we decentralize the web?

Today, building on the web requires many centralized elements and services (e.g., compute and storage, database and querying, etc). However, Bitcoin pioneered a decentralized path by introducing crypto-economic networks.

Specifically, crypto-economic networks use provably-scarce digital tokens to incentivize a distributed network of actors. These actors contribute valuable resources to a network, and are rewarded for their contributions.

Bitcoin is the first example of a crypto-economic network, where the block reward incentivizes independent, for-profit actors to expend resources in order to validate bitcoin transactions, which contributes to Bitcoin’s security. But this model can be extended beyond Bitcoin’s security-based model; similarly incentivizing a group of actors to provide computation, storage, identity services, etc, through separate crypto-economic models.

These new networks restrict excessive single-party control, providing open platforms for entrepreneurs to leverage as they build products and services. When enough elements are fully decentralized, the result may be a unified experience that captures the vision of an open web.

What are some examples?

Decentralized crypto-economic based networks have emerged for a variety of use cases:

Storage: IPFS FilecoinSiaStorjSwarmTextile* Compute: DFINITYFluenceGolemBlockstackOffchain Labs* Platform and Network Coordination: Base cryptocurrencies like EthereumTezosEOSNEAR*, etc.; and Urbit Query: The Graph*, OrbitDB Messaging: WhisperOrchid Interoperability: CosmosPolkadotInterledger Protocol Oracle Services: AugurChainlinkUMA* DNS: HandshakeENSFIO Identity: CivicuPortTorus* Exotic: Video streaming (Livepeer), Social Networks (SteemitRelevant*), Governance (Commonwealth*, DecredTezos), Bandwidth (HeliumAlthea)


Wallets: Several, including Coinbase WalletBlockchain WalletLedgerTrezorWasabiBRD, etc. Borrow / Lend: Compound*, Dharma*, bZx Payments: Coinbase CommerceBTCPayCelo*, and base cryptocurrencies like Bitcoin Lightning NetworkXRP, etc. Stablecoins: Several, including USD CoinMakerDAO (Dai), Reserve*, etc. Exchanges: 0xUniswapKyberdYdX Insurance: EtheriscNexus Mutual * Coinbase Ventures Portfolio Company ** This list is informational only and does not constitute investment advice.

Interestingly, these crypto-economic networks also change traditional cost models by more efficiently utilizing previously wasted resources, and removing intermediaries.

For example, individuals participate in decentralized storage or compute networks by loaning out their spare hard disk or CPU cycles, and are paid in each network’s native token. In return, app developers pay for these resources to store encrypted files or perform app computations, all while operating on a decentralized censorship-resistant network.

In theory, the result is greater efficiency of resources, lower costs to consumers, and decentralized platforms where individuals control their own data and intermediaries cannot restrict access or change the rules of participation.

Final thoughts

Decentralizing the web holds tremendous potential and there are a number of talented teams working hard to make it a reality. If successful, consumers’ relationships with digital products and services will be fundamentally redefined and will carry profound implications.

On the other hand, building, scaling, and securing these networks is complex and challenging, and many questions remain unanswered. How will we upgrade or govern these networks? How can they scale to millions of users while retaining decentralization? We are early in this journey, but some projects are showing promising signs of traction.

Coinbase will look to support these new crypto-economic networks where possible by providing safe and trusted paths for our customers to participate. A truly open web is a large part of the promise of cryptocurrency, and aligns with our mission and vision of an open financial system. We’re excited, engaged, and actively investing in many of these projects today via Coinbase Ventures.

If this excites you, join us and help build the bridge! To learn more about decentralizing the web, see Chris Dixon’s many thoughts, Fred Wilson’s blog, and Multicoin’s survey on Web 3.0.