How the Web3 economy works and who’s in control

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If you’re paying attention to the news at all, you’ll hear terms like ICO, Airdrop and Metaverse thrown around with great frequency. Even beyond the business and tech pages, shows like “The Good Wife” have plotlines involving Bitcoin. Clearly, digital currencies are becoming more mainstream, but what exactly is this new economy that is being built on the blockchain?

In my previous articles, I have discussed how web 3.0 works and the benefits of this new decentralized internet. We have also talked about the fair and democratic economics of this new system. But how does the web 3.0 economy actually work?  

Note that this is not an entry-level discussion on ICOs and blockchain. Rather, we will talk about how this new economy is fundamentally different and more advantageous compared to the current economy that runs on centralized systems like banks, governments and big tech companies.

Global economics and hierarchies of power

To understand how the web 3.0 economy works, we must first understand our current global economic system and the hierarchies of power that exist within it.

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Our current economy runs on a centralized system. This means that there are a small group of institutions that have control over the entire system. For example, banks control the flow of money, governments control the legal framework and big tech companies control our data.

These institutions have very different agendas and interests. Banks want to make as much profit as possible, governments want to maintain stability and order, and big tech companies want to monopolize their respective markets.

The problem with this system is that it leads to inequality and injustice. The rich get richer while the poor get poorer. The powerful get more power while the powerless are left behind.

The web 3.0 economy, on the other hand, is based on a decentralized system. This means that there is no central authority or institution that has control over the system. Instead, it is a network of computers that are all connected to each other.

This network is powered by the blockchain, which is a distributed database that records all transactions that take place on the network. This database is public and transparent, which means that everyone can see what is happening on the network.

The result is a fair and democratic economy where everyone has an equal opportunity to participate and benefit from the system. There is no central authority that can manipulate the system for its own benefit.

The bureaucracy of modern projects

Have you ever asked yourself: Why is it so hard for the United States to build high-speed rail?  The answer is bureaucracy. It’s not just the United States, of course. France has the same problem. So does Brazil, Russia, India, and pretty much every other country in the world.

The problem with bureaucracy is that it’s very inefficient. Projects take years to complete because there are so many layers of bureaucracy that need to be navigated.

So let’s think about what has to happen for high-speed rail to get implemented in the United States. First, a project like this would have to be proposed. Then, it would have to go through feasibility studies. After that, it would need to be approved by Congress.

Once it’s finally approved, the project would then need to be bid out to contractors. And even after all of that, there’s no guarantee that the project will actually get built. It’s very likely that the project will get delayed or even canceled due to bureaucracy.

Politicians, lawyers, and consultants — all of whom do not really know anything about building railways — get involved and make the process even more complicated. And the longer the process takes, the more expensive it becomes.

Of monopolies and cartels — antitrust vs trustlessness

John D. Rockefeller and Bill Gates are two of the richest men in history. They built their fortune by creating monopolies or near-monopolies in their respective industries. And, both of them have been taken to court for their antitrust practices.

These practices have been enabled by a system that favors the rich and powerful. The illusion of free and open markets is just that — an illusion. In reality, the markets are rigged in favor of those who have the most money and power.

But what if there was a system that was designed to be trustless? What if there was a system where monopolies and cartels could not exist?

In a blockchain-enabled economy, the practices of monopoly and cartel would be impossible. This is because the decentralized nature of the system would make it very difficult for any one entity to gain control over the network.

So how exactly would this stop monopolies and cartels? Aside from decentralization, trustlessness has to do with the fact that all transactions in a blockchain-enabled economy are transparent. This means that everyone can see what is happening on the network.

If someone were to try to create a monopoly or cartel, it would be very difficult to do so because everyone would be able to see what was happening. A real-world example of something that would have been stopped by transparency is the Enron scandal.

The Enron scandal was only possible because the accounting practices of the company were not transparent. If they had been, it would have been very difficult for the executives to defraud their investors.

The importance of market integrity

If you have read Adam Smith with his idea of the “invisible hand” as an agent of decentralized free market formation, then you know that the key to a prosperous market is justice. Unfortunately, in today’s world, markets are anything but honest. Governments prop up failing companies with taxpayer money. Banks and corporations engage in fraud and other illegal activities. And the rich and powerful rig the system in their favor.

We can define market integrity as it relates to Smith’s teachings as the adherence to the free market principles of voluntary exchange, open competition, and limited government intervention.

In a blockchain-enabled economy, market integrity would be ensured through transparency and trustlessness. As we have seen, these two attributes would make it very difficult for anyone to engage in fraud or other illegal activities.

The trustless nature of such an economy would ensure that prosperity can be accessible to all, not just the rich and powerful. This is evident in how retail traders in the crypto space are able to get involved as opposed to accredited investors.

A blockchain-enabled economy would also be much more efficient. This is because there would be no need for middlemen like banks and governments to facilitate transactions. Decentralized Finance (DeFi) has the potential to disrupt the entire financial industry, because in a blockchain-enabled economy, all transactions would be peer-to-peer. 

So to nail down the point — the economics of web 3.0 can usher in a financial renaissance where anyone in the world can participate in and benefit from the system. 

Fast transactions, accountable code and global access are the key features of the web 3.0 economy.

In the next article in this series, we will step into the reality of science fiction and discuss the rise of machines. What do big tech companies and other organizations do with your data? Can the blockchain be the “Sarah Connor” that we are all waiting for?

So stay tuned! 

Daniel Saito is CEO and cofounder of StrongNode.

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