Decentralization Is an Illusion: A 2023 End-of-Year Look at Web 3.0

Web 3.0/Web3, the so-called “decentralized web,” presents itself as a revolutionary evolution of the internet, a departure from its Web 2.0 predecessor, with its centralized control, surveillance, and data exploitation. In the rosy vision of Web 3.0, users encounter enhanced control, fortified privacy, and a fertile breeding ground for innovation. As we reflect on Web 3.0 at the close of 2023, we are confronted with a stark division between the idealized vision and the reality shaped by global brands that have capitalized on that vision.

Decentralization promises a digital world where user autonomy and privacy thrive, aiming to break free from centralized data control. However, the complexities of decentralized systems, security risks, and uncertain regulations make achieving ‘true decentralization’ a formidable challenge. Some advocates of pure decentralization still exist, but they’re no longer as welcome in the halls of power as they were at the height of peer-to-peer and open-source acceptance following the dotcom bubble burst.

The term ‘Web 3.0’ refers to the imagined ‘next generation’ of the internet, which its proponents imagine to be based on blockchain technology and smart contracts. Web 3.0 is not a clearly defined concept, but rather a vision of how the internet could evolve and transform in the future. Some of the features of Web 3.0 include allowing new ways of organizing and governing online communities and platforms, without relying on traditional models of authority and control.

For example, Web 3.0 could enable users to have more control over their own data and identity, and to participate in decentralized applications (DApps) that run on the blockchain and are owned and operated by the users themselves. Web 3.0 could also foster more collaboration and innovation, as well as more transparency and accountability, among the participants of the network. In other words, it holds a strong populist-utopianist side. But that isn’t too far from how it is marketed by big stakeholders, either. So, who are those big stakeholders?

Cloud services are very important to the idea of Web 3.0, as they enable the creation and deployment of DApps. It is difficult to estimate how much of the internet is hosted by cloud services, as there is no definitive way to measure the size and scope of the internet. However, some sources suggest that cloud services host around 40 percent of the internet’s traffic and data. This percentage is likely to increase in the future, as more websites, applications, and devices migrate to the cloud.

According to Statista, the global cloud infrastructure services market was valued at $371.4 billion in 2020, and is expected to reach $832.1 billion by 2025. The market is dominated by a few major players, namely Amazon Web Services (AWS), Microsoft Azure, Google Cloud, Alibaba Cloud, and IBM Cloud. These five providers accounted for 65 percent of the total market share in the fourth quarter of 2020. AWS alone accounts for half of that, with clients that include Netflix, Airbnb, Spotify, NASA, and the CIA.

Speaking of government agencies, they, of course, have a much greater voice than the average individual in matters of infrastructure. The decentralized web challenges the existing power structures and authority of governments, as it enables users to own and control their own data and digital assets, without relying on intermediaries or centralized platforms. Decentralization brings with it vulnerabilities arising from opaque channels beyond state control, as well as jurisdictional issues.

The tremendously centralized hosting platforms of the “decentralized” web are eager partners for states, as has already been amply shown in recent years. Cryptocurrency enthusiasts have expressed concerns about the Federal Reserve’s interest in central bank digital currency (CBDC). For its part, the Department of Justice has already proven itself proficient in tracing blockchain transactions.

Yet when we look for information pertaining to Web 3.0 stakeholders and their expected benefits, we seldom find such information. We instead enter a hall of mirrors, where “stakeholders” is a placeholder for those who consume whatever it is that is ultimately served to them. Developers and users are cast in their roles as primary beneficiaries, along with “activists” (read “miscellaneous”), whose very inclusion inside the schema represents a foregone conclusion about our future.

Optimistic boosters suggest novel governance mechanisms to offer liberation from traditional models. Delegated Proof of Stake (DPoS) lets token holders play at democracy by voting for block producers, peddling the illusion of decentralization. Decentralized Autonomous Organizations (DAOs) run on code and collective voting, supposedly slicing away centralized control. Yet as we marvel at successful projects like EOS and MakerDAO, we’re also haunted by the ghosts of successive failures.

The DAO, an organization that raised $150 million to invest in projects on the Ethereum blockchain, was hacked soon after its 2016 launch by an attacker exploiting a vulnerability in the smart contract code, and $60 million was stolen. Such incidents emphasize the importance of governance mechanisms that can prevent and resolve such incidents. And yet it is the state, that old monopolizer of such forms of control, which is best positioned to respond to the unintended consequences of decentralized utopianism.

Open-source software (OSS) sits at the heart of Web 3.0, providing the building blocks for various applications and platforms, such as blockchain, peer-to-peer networks, cloud computing, artificial intelligence, and more. However, OSS faces a grim battle for survival, as it struggles to secure adequate and sustainable funding. Funding is essential for OSS to maintain its quality, security, and innovation, as well as to support the developers and communities behind it.

The traditional funding models for OSS, such as donations, sponsorships, grants, crowdfunding, and subscription fees, are often insufficient, unreliable, or misaligned with the values and incentives of OSS. They can fall victim to the cycles of fundraising for the sake of fundraising inside a broader tech industry ecosystem within which failure is celebrated in perpetuance of the hype train.

All together, the proponents of ‘true decentralization’ — opponents of what we might rather call today’s real existing “true centralization” — are no real opposition at all. The promised utopia of a decentralized Web 3.0, facilitated by serverless cloud hosting, still relies on a handful of megacorporations. The only thing the hype does/did is allow those megacorporations to sell SaaS products while requiring users to sacrifice more privacy and autonomy.

When Amazon confessed this year that cloud hosting its own video services proved 90% more expensive than locally hosting them, it struck many observers as a confession. However, what was being confessed was not often clearly defined. Cloud services are here to stay as a profitable product accessible to small users. But it showed us, if we still had any doubts, that in the playbook of big tech, decentralization for us was always designed to result in more centralization for them. At least now, perhaps, a bit of our utopianism can be discarded.