This article is the 2nd part of a 3 part series. The first part focused on why I believe that social platforms will be the dominant portal through which the entire crypto and web3 ecosystem will be experienced by users â and you can read it here.Â
Simba: What about that shadowy place?
Mufasa: That's beyond our borders. You must never go there, Simba.
(overheard conversation between web3 PMs)
Iâm seeing a lot of bad takes on my timeline lately about centralization in the NFT space, so letâs cut to the shit.
A logical takeaway from my last article would be that Twitter, Discord, maybe even Facebook (weâll group these platforms into a bucket we call âweb2â) have already seen the inevitably of the metaverse, will pivot to crypto in short order, and are months away from dominating web3. Seems straightforward. Theyâve done the hard part of building a social network, so why wouldnât they be best positioned to control the next frontier?
âBut, wonât Twitter own web3?â âBut, but, but, theyâre already rolling out NFT verified avatars and it seems like theyâre leaning into ethereum hardâŠâÂ
I remain unpersuaded by the half-hearted efforts Iâve seen so far, and in this article Iâll explain the limitations of web2 social platforms in completing the pivot to web3, and the fertile ground this creates for new products and platforms.Â
First, some context. Every time you sign up for a new product or service you re-commit web2âs original sin - itâs like the reverse of going to communion for any of you practicing catholics out there. We go to Facebook or Twitter and we fork over our first name, last name, date of birth, address, education, social activities, physical activities, occupation, social security number, and motherâs maiden name. And as soon as you hit that submit button, all of that data becomes the property of the platform or service youâre signing up for - youâve fashioned a noose around your neck and handed the loose end to the executioner.
The entire business model of a web2 social platform revolves around owning the information that you give them on day 0, and then tracking everything you do and mapping all the interactions and intersections between your account and every other account on the platform. Then they throw a USD market rate on your propensity to consume, throw you out on the corner, and pimp you out to advertisers at the highest marginal bid. Protest, complain, leave the platform, and they yank the noose and snuff you out. Your identity has been invalidated. De-platform; de-stroy.Â
Everything described above is incompatible with a web3 identity model, and if youâve wondered why Coinbase, FTX, and other centralized/regulated NFT exchanges have failed (and will continue to fail) in capturing market share from the incumbent NFT marketplaces - this is the reason why. Itâs because each platform must choose which identity model will hold primacy. Either web3 identity is primary or web2 identity is primary, but they cannot co-exist. Facebook account OR eth address. FTX account OR solana address. âANDâ is a myth.
Letâs define web3 identity
Identity in web3 is comprised of three primitives:
An on-chain address (like an ethereum or solana address)
The assets owned by that address (specific NFTs or token balances)
The asset collections those assets belong to (the NFT collections and token contracts)
Thatâs it. No KYC, no salt, no pepper. With just the above information, I can instantly recreate your identity and an entire social graph of the communities youâre part of and have access to. All of the data is transparent, pseudonymous, and open source on chain, and regardless of which web3 product or platform youâre using the same profile data and history is accessible everywhere. The entire value proposition of web3 identity is predicated upon the shift of control of identity from platforms to users. Web3 social platforms cede control of user identities, and in return reap all the benefits described above.
This is a tradeoff that web2 platforms will never be able to make.
It is a rewriting of the internetâs social contract. An incredible democratization of access to identity for individuals that want to control their credentials, and for entrepreneurs that can bootstrap a social graph with no exploitation or investment required. Itâs also an irreversible erosion of the fundamental monopoly of identity that each web2 social platform controls within their digital fiefdom.Â
âBut what about Discord?âÂ
Jason Citron - CEO of Discord
Letâs walk through a specific example of a platform that most likely will not complete the transition to Web3. Today, Discord is the home to NFT communities. Every single NFT project has an NFT-gated discord server where all of the channels are private pending user verification of NFT ownership by a third party bot. The bot verifies wallet signatures and links verified wallet addresses with the userâs Discord account. The purpose is to merge web3 identity into web2 identity, but the Discord account is still dominant on the platform.
Congratulations, we built the biggest honeypot for hackers, scammers, and charlatans in all of crypto. NFT holders getting hacked through Discord is beyond a meme at this point. This single point of failure where users link web2 identity to web3 identity is a MASSIVE, unaddressable vulnerability for users, and we ask them to perform this action almost every time they join a new discord server.
The web2 identity (i.e, the discord profile that discord owns) has primacy on the platform and the results speak for themselves. Endless spam dms, constant phishing attempts, innumerable hacks. Prolific NFT holders, the most valuable users on the product, are targeted and punished. The most highly invested have the worst experience⊠what an anti-pattern.
This isnât a failure in execution by the Discord team. These are all just symptoms of the underlying disease: centralized control of identity. Pulling it back to the example given at the top of the article, itâs the same reason that is impossible/infeasible for FTX and Coinbase to pivot web2 identity to web3, theyâd have to cede their monopoly on identity, an action they are regulatorily prohibited from doing.
Web2 and web3 identities cannot coexist peacefully. The choice is there for each platform. Itâs either/or. Either refactor the foundation of your platform, or become a marginal player in the next age of the internet. Unfortunately, the innovatorâs dilemma is real, and I think we can predict how this plays out.
Itâs not the end of web2 social, but it is the end of the road for web2 identity.