Lots of people (especially in the pub) ask me what I think of cryptocurrencies and related “web3” technologies.

After selling Loco2 I bought some Ethereum because I was lucky enough to have just come into a lot of cash, and I was intrigued about the idea of “smart contracts” because the history/evolution of money is all about promises people make to each other. I’d also often been frustrated when working with lawyers and it felt like a lot of low-level contractual stuff could be easily automated, and I thought Ethereum might be able to help (e.g. making it easier to buy a house).

I’ve never been particularly interested in the privacy side of web3 (contrary to the popular Big Tech narrative, it’s rare I feel that my privacy has been violated, even if I am served ads that are only relevant to me because Facebook knows what I like). Nor have I got very excited about the fact that it’s possible to be completely anonymous. I would even go so far as to say I actively dislike the idea that building a society where we can all be “trustless” is a good thing; I’d like to know and trust the people I’m transacting with, rather than be relieved that I can reliably transact with any old cowboy.

I’m not convinced that what web3 offers is much better than the existing consumer finance system (especially given the substantial costs of implementing a service in web3 technology). For example, the fact that crypto wallet services like MetaMask are entirely reliant on someone remembering a long phrase, with no “Forgot password?” option, makes it a highly risky way to manage finances. Web3 will never be adopted widely whilst these sorts of issues remain, and I don’t really want it to be.

There’s also the obvious carbon footprint aspect of mining (which is why many people who know me may be shocked that I’ve even entertained the idea of blockchain technologies having value at all). Perhaps I’ve been complacent on this point, but from the outset I felt that it was likely that energy consumption would be divorced from mining/transacting. When it was announced that Ethereum would migrate from Proof-of-work to Proof-of-stake (slashing energy use/carbon by 99.5%), I felt vindicated, but I don’t envy the engineering teams attempting to complete it, and it remains to be seen if “the merge” will actually go ahead in September given all the previous missed deadlines.

I’ve been disappointed that more interesting startups haven’t emerged using Ethereum, and that instead lots of pointless new currencies have emerged. I particularly hate Dogecoin because it’s just Elon Musk’s wet dream (side note: Apparently they now sponsor Watford FC!).

Although I think the crypto industry has done way too much navel-gazing (and focusing on the minutiae of governance is the biggest symptom of this), I do see some value in the core DAO concept. That said, the vast majority of DAOs that exist today are not problem-focused enough. With a few interesting exceptions, DAOs have emerged to serve the growth of cryptocurrency as a fintech market rather than anything to do with the actual economy. The amount it’s all driven by asset speculation is transparent and often quite sickening, especially now there are so many people who have lost their life savings in the recent crash.

The reason I think the DAO concept retains some value is that it provides the blueprint for a democratically-run organisation, in which user and shareholder interests are aligned. The problem is that tokenisation as it’s currently implemented almost always favours the earliest and largest investors, just like the pre-existing startup ecosystem. The initial hype of a coin/token drops was never going to be sustainable, and it’s not surprising that the balloons have now rapidly deflated.

An organisation in which users can readily invest/lend, and participate in decisions as part of a democratic governance structure appeals to me because it aligns incentives and simplifies financing (it grounds financing in the real world of human users rather than a financial sector that should have been rebuilt entirely following the crash 14 years ago). An organisation that is controlled solely by early adopters only will never evolve. A flatter, more cooperative structure is much more compelling as a mechanism to unlock scale and DAOs provide the potential for this, even if no-one has built a workable example yet.

Being funded by users expecting an annual return of somewhere between the base interest rate (currently 1.75% in the UK) and inflation (over 10% and climbing) means access to substantial capital and no pressure to sell for 10X (i.e. what a typical VC is aiming for). But whilst a technology company is being built it requires capital, and normal users are never going to have the required faith from day one.

If you forgo raising venture capital to pay developers in cryptocurrency then you put an arbitrary value on the organisation from day one (to ensure that the developer gets what they believe to be a reasonable salary), and encourage bubble-esque hype that will probably end in tears. Therefore I remain sceptical about this as a route to fund development prior to the organisation being appealing to “user investors”.

The question is then do you need the blockchain element at all to build an organisation that is more democratic and efficient than a typical “web 2” tech company? Is it not possible to imagine a user-controlled organisation with transparent governance built on much simpler and less expensive technology than trying to do everything “on chain”?

DAOs have unlocked the idea of decision-making via clearly auditable votes by anyone deemed a “member” (token holder) and are starting to involve users in much more interesting decisions than “Please help us elect our board via this PDF” (which is the banal extent to which I’ve participated in user-controlled/cooperative organisations to date). These are the sorts of ideas I’d like to see survive the fallout of the crash.

One mistake I’ve seen made by DAOs is assuming that substantial numbers of users will be willing and enthusiastic to participate in decision-making on an ongoing basis (many DAOs have struggled to hit the minimum thresholds for decisions to pass, with the remaining core of participants becoming frustrated as the dream slowly dies). Beyond the Get Rich Quick hype of coin drops and token issues, it was always likely that only a few users would be interested in governance/ongoing contributions. But despite the incredibly low level of participation from typical users, the fact that any user has the right to participate, is the basis on which Wikipedia has revolutionised our lives, and I’d love to see this model replicated more widely (Signal is probably the best example today, though as a non-profit rather than a cooperative DAO).

In summary, I think crypto has raised some interesting questions about the relationship between economics, law, and technology, and that there is value in continuing to explore these questions. But I think those working in web3 need to calm down and work methodically through the benefits of each structure before trying something that has more meaning than just helping existing players in the market to improve their asset speculation positions. When the switch to PoS finally happens I’ll become more enthusiastic about the potential of ETH again, with all the caveats above.

P.S. I think NFTs are fairly ridiculous but assuming some people are in it for the right reasons (e.g. Tim Berners-Lee), I understand why people are trying to find a way to value creativity properly. Spotify is a better battleground for that fight.