Abstract
Introduction
The self-proclaimed usurper of Web 2.0, Web3 quickly became the center of attention. Massive companies (e.g., Facebook-cum-Meta), venture capitalists (Andreessen Horowitz), and global consultancies (e.g., Accenture) made strategic pivots and financial commitments toward embracing and driving Web3. A vigorous online community, alongside a forceful ideological apparatus, emerged to push Web3 as
As we were revising this article for publication, many giants of Web3 fell hard and fast, as if to prove that what rockets upward may very well plummet back down. The cycles of technological trends and investment bubbles seem to be accelerating in such a way as to escape any attempt at observing them in motion before they crash, and then everybody moves on to the next thing. That said, this article is not a post-mortem on a spectacle, nor is a primer on a system that has become past tense rather than future tense. Web3 was not an anomaly in the broader tech industry. It should be understood as a product of that industry, which articulates patterns and dynamics that existed before Web3 and will exist after. This article is a critical analysis of Web3—and the concepts, conflicts, and interests that defined it—as a case study of innovation within the dominant model of Silicon Valley venture capitalism. The innovations may not survive, but the model continues to thrive.
So what exactly is Web3? Perhaps the broadest possible description of Web3 is the term used for the next ascendent stage of development for the internet. Even this short description, as we explain later, is based on a loaded narrative. If we get more specific, Web3 is defined by Coinbase, a major cryptocurrency exchange, as “a
Web3 could also be understood in terms of an internet built on doing different things with data. Blockchains are using encrypted, distributed ledgers to govern data. Cryptocurrencies are minting tradable tokens (or “cash”) from data. NFTs (non-fungible tokens) are assetizing representations (or “art”) of data. Metaverses are creating virtual realities (or “real estate”) out of data. The list could go on. The dynamics of (de)centralizing the internet are based, in large part, on who can own, control, access, and monetize data and data infrastructures. The technical protocols and social visions of Web3 are (nominally) premised on expanding and elevating the role of data for users beyond the control of data for tracking and targeting by platforms.
For the majority of people, it is fair to say that Web3 can seem impenetrable, as if it were difficult to comprehend by design. Look no further than the countless articles trying to explain individual parts of the Web3 ecosystem—blockchain or crypto or metaverse or DeFi or NFTs or DAOs—and why they matter to a lay audience. “It's a collection of ideas shrouded in techno-obscurantism, dense jargon and absurdist memes” (Diehl, 2022: np). It is not always clear how various technologies are different, how they relate to each other, how they plug into tightly held social visions, how they form bits of an economic ecosystem that does not exist in entirety and is still largely self-referential. However, while explainers who demystify specific applications and segments of Web3 are very useful (see Beegle, 2021; tante, 2022), clearing up the confusion about Web3 is more than just a technical dilemma of describing how it works.
We seek to investigate other political dilemmas and financial dynamics that are arguably more crucial sites of struggles over how Web3 is defined and built. In other words, our aim is less concerned with Web3 as a collection of technologies, applications, and protocols, which is how it tends to be described. Instead, we are more focused on understanding how the movement around Web3 is formed through an interplay between (1) normative concepts and contestations and (2) political economic interests and operations. By offering a critical analysis of Web3, our goal is also to show how any even potentially progressive (or as we call them “expansive”) forms of Web3 development struggle for success, recognition, and attention due to the wild excesses of hype and investment devoted to “extractive” forms of Web3. 1 Even if the extractive politics are baked in at the deepest level of technical protocols, it is not the case that this was the only option or that no alternatives existed. Web3 may have been overdetermined—in the sense that many powerful forces were pushing it in a single direction—but it was not determined in the sense that it could not have developed in any other way.
Methodological approach
This article's critical analysis builds on our study of Web3 from different vantage points. Our interest is in going beyond the surface of Web3 and understanding its foundations. For both authors that research has included continually reading a wide range of materials related to Web3, including reporting in the technology/financial media; stacks of white papers, financial reports, policy reports, marketing copy, and other materials released by companies, startups, investors, and consultants; and engaging and lurking in online community discussions on social media (e.g., Twitter and Discord). For the first author, JS, this has also included informal conversations and recorded interviews—over a dozen of which have been released publicly as podcast episodes—with technologists, journalists, and social scientists who study Web3. These interviews served as invaluable background for helping develop and validate our analysis, rather than as primary sources for coding and excerpting. For the second author, KB, this has also included working on the governance team within a Web3 organization—which has not endorsed or supported this article—as well as attending major industry conferences like ETHDenver.
This article has come together as the result of a chance meeting between the two authors—the first an academic and the second an industry worker and independent researcher—which turned into a collaboration based on our shared analysis of how, why, and for whom Web3 was being created. Our different positions and approaches to Web3 were crucial for developing our conceptual analysis. We knew from our extensive reading that the question of
The article proceeds as follows. In the next section we discuss the origin stories that seek to define and give meaning to Web3. The second section then digs deeper into the concept of “decentralization,” which is a crucial site of normative contestation over different visions, communities, and applications of Web3. We identify two competing politics of Web3, which we term extractive and expansive networks. The third section then dissects the political economy of Web3 through the operations of fictitious capital and venture capitalists. The conclusion then offers reflections on future directions for social scientific investigations and evaluations of Web3.
Origins: Epochs of the web
There is, by those with an interest in (re)writing histories and futures of the internet, a strong tendency toward periodization. The epochal style of thought is alluring. It presents a god's eye view of an inertial force of nature that progresses lockstep through a series of evolutionary phases. This stage follows from that stage because it could not be any other way. “The internet” seems to be especially susceptible to epochal analysis because it sits at the center of a cultural economy that valorizes speed, dynamism, and disruption (Wajcman, 2015). These values are designed into the technologies; they are driven by political economic imperatives; they are deployed in practice by the makers, risk-takers, and move-fast-breakers who are valued above all others. This leads to a time compression as transformation, which seemingly happens at ever shorter intervals. After all, the internet as a commercial technology for everyday public use is less than 30 years old, yet it's already entering (and leaving) its third age of existence.
The epochal style also offers the entrepreneurs, investors, and boosters an opportunity to be the author of that transformative narrative and write themselves as its heroes. If they are successful, this becomes the story that is passed on, told and retold, accepted as truth. As the normative and material conflicts over definition and ownership begin stabilizing, the broad consensus leads to the closure of interpretative flexibility (Pinch and Bijker, 1984). And the new web becomes another meme that is circulated, remixed, and applied in ways that constantly reassert the meme's own fixed realness (see Chun (2006) for Web 1.0 and Morozov (2013) for Web 2.0). This does not make the values and technologies any less concrete in their existence or effect. To the contrary, it makes them even more substantial because there is a whole political, economic, cultural, and technological apparatus invested in expanding and enforcing the power of Web 1.0, Web 2.0, Web3, etc.
The dominant discourses that seek to define and contextualize Web3 are largely based on potted histories of technological evolution. The same popular narrative can be found repeated by investors like Andreessen Horowitz (a16z, 2022), companies like Coinbase (Dempsey et al., 2022), and countless other articles, reports, white papers, and social media posts about Web3. The basic story is that each Web version is adding a new core capability on existing ones (Figure 1). “Whereas the first iteration of the commercial internet (Web1) was
Slide 6 from the 2022 a16z State of Crypto report—put out by major venture capital firm and Web3 investor, Andreessen Horowitz—which seeks to illustrate “why Web3 matters” in relation to previous eras of “web1” and “web2”.
Decentralization: Background on a conceptual battle
For advocates of Web3, the utility of these explainer narratives is to place Web3 in direct opposition to, and/or as a direct advancement from, what came before it (a16z, 2022). As one crypto entrepreneur told Zook and Grote (2020: 1570), “My enemy was Facebook. I wanted to fight Facebook… It was a pure ideological movement.” Advocates assert the importance of Web3 applications for achieving goals such as decentralizing money away from state control (Vidan and Lehdonvirta, 2019), democratizing data to reclaim it from Big Tech (Nabben, 2022), and defending rights of ownership over digital organizations and digital assets (Corballis and Soar, 2022; Patel and Dixon, 2022). These concerns and goals are not unique to the contemporary moment. They were also broadly held by the cyberlibertarian cypherpunk and crypto-anarchist communities of the 1990s (Golumbia, 2016; Karlstrøm, 2014; Swartz, 2018)—back when “crypto” referred to cryptography before it switched to shorthand for cryptocurrency. However, that switch is what opened the flood gates for people and capital to pour into Web3, creating a movement focused on advancing an internet built on decentralization and financialization. “Instead of the disintermediation of money, Bitcoin was practised as a new hyper-marketized form of mediation. […] As the price of Bitcoin rose, there was rapid professionalization in the Bitcoin ecosystem, such as the founding of Bitcoin start-ups, Bitcoin start-up incubators, professional Bitcoin conferences, and Bitcoin news outlets. Most of these were focused on the market dynamics of Bitcoin, on facilitating their purchase as speculative investment.” (Swartz, 2018: 639–640)
Bitcoin's popularity, and the immense wealth it quickly generated, catalyzed the exponential growth of the larger Web3 ecosystem. More cynically, many proponents who have recently entered into this murky arena from the “traditional tech” sector are eager to align themselves with the presumptions of an emerging zeitgeist that postures itself as both ideologically pure and extraordinarily opportunistic. As the same crypto entrepreneur above also bemoaned, “Last year, no one was building, people were just raising money because it was so easy to find” (Zook and Grote, 2020: 1570).
Web3 advocates like Chris Dixon regularly cast themselves as heroic figures rebelling against the villainous platforms of Web 2.0 (Patel and Dixon, 2022), often by repurposing and reframing critiques based on, most notably, Shoshana Zuboff's (2019) analysis of surveillance capitalism. For both parties represented by Dixon and Zuboff, the problem is not capitalism
For example, Corballis and Soar (2022) offer an ideology critique of the utopian promises embedded in the white paper from a Web3 startup, Colony, that aims to build an Ethereum-based protocol for the creation of “decentralized autonomous organizations” (or DAOs). The Colony white paper and other “texts suggest an abstract, contextless and scaleless organizational solution—powered by smart contracts on a blockchain—that, according to its proponents, might be applied to any social situation, from small firm to state-level governance” (Corballis and Soar, 2022: 1). Here we can see how Web3 is the result of technical applications of decentralization for specific purposes—storing, governing, and acting on data—becoming abstracted as technopolitical protocols of decentralization for universal governance. It is conceptually impossible to disentangle Web3 and decentralization. However, what that tangle looks like in practice is still very much up for debate. The meanings of Web3 and decentralization have not stabilized into a settled matter; hence all the confusion about definitions and all the ideological battles and financial investments devoted to controlling the narrative.
Acknowledging the coexistence of a broad consensus within Web3 that decentralization is a normative and instrumental good, alongside the broad dissensus about why it's good and how to do it, has itself become something of a cliché. Two widely cited pieces by Web3 luminaries, one a technologist and one a theorist, begin by remarking on this cliché. First is an essay by Buterin (2017: np), co-founder of Ethereum, that remarks on how decentralization is “viewed as a blockchain's entire “In the discourses surrounding blockchain-based crypto-networks, decentralization has come to assume a heightened heft and significance; rather than regarding it merely as a technical characteristic, they treat decentralization as a way of life. They have synthesized decades and even centuries of arguments for decentralized systems, from Adam Smith to Satoshi Nakamoto, into a guiding ideology.” (Schneider, 2019: 266)
If Web3 is supposed to be predicated on decentralization, it would make sense that its disparate pieces and individual contributors are likewise diffuse in their interpretations, social values, and political positions. There is not an even distribution across the whole spectrum of approaches to decentralization—some interpretations and applications have more adherents and hold more influence than others—but there is a range of opinions and motivations, nonetheless. While they may all share a commitment to decentralization, increasingly there are partisan differences between visions of what Web3 should be that are in direct opposition to each other.
It is through this construction of meaning that varied and distinct cleavages can be observed within Web3. Recognizing such variegation complicates a default critical mode that argues the entire ecosystem is ideologically uniform. Critiques of the cyberlibertarian and technoutopian beliefs of Bitcoin maximalists are very applicable to major dimensions of Web3 (Golumbia, 2016; Swartz, 2018). But they can also be too quickly applied in ways that risk missing key differences and cleavages. For example, as Jutel argues in a case study of blockchain imperialism in the Pacific, “Blockchain, as a discourse, eschews the explicit ‘cyber-libertarianism’ (Golumbia, 2016) of cryptocurrencies and retains a contradictory relationship to the state. The state may be an obstacle to innovation, a potential client or confer legitimacy on blockchain. This tension makes the politics of blockchain evasive, with claims of algorithmic governance and disintermediation lending themselves to innumerable interpretations” (Jutel, 2021: 1–2). Jutel's analysis focuses on projects that still sit within extractive practices. As we will show, the cleavages run even deeper with projects that attempt to bend Web3 toward progressive expansive, and even socialist emancipatory, ends.
Our structural critiques should be able to account for the fact that the values and motives of individual Bitcoiners—or those drawn into other Web3 communities—cannot be summarized as a singular politics, even if the larger financial drivers and cultural narratives of these sociotechnical systems are overwhelming weighted toward certain positions and interests (Dodd, 2017). The Web3 ecosystem, with Bitcoin being just one component, is thus best understood as social movements based on political technologies, but whose motivations and applications readily inspire the cypherpunks, the solarpunks, the goldbugs, the cryptographers, the speculators, the technologists, the curious, the cynics, the hopeful, the marginalized—many of whom have experienced, and are reacting against, the failures of financial institutions and other governing bodies (Dodd, 2017; Maurer et al., 2013; Swartz, 2018).
There is a notable chasm between the “decentralized finance” (or, DeFi) arm of Web3 and the emerging “alternative” Web3 project spaces. Some observers have described it as a “culture war” between anarcho-capitalists, who see blockchain as a way to free money and markets from the state, and “crypto-communists,” who see blockchain as a way to empower democratic autonomy and cybernetic planning (Pimentel, 2022; Munster, 2022). These partisan conceptions of decentralization build on longstanding conflicts that have carried over from previous internet eras between, for example, grassroot free software advocates and corporate open source thought leaders (Morozov, 2013). Considering the gravitational importance of “decentralization”—both as a tenet that attracts people and as a tenet that everything orbits around—we should pay attention to the increasingly contradictory deployments of decentralization across the technopolitical spectrum of Web3 projects. This is, in large part, perpetuated by the questionable degree to which decentralization actually exists in Web3 centralization and consolidation is reoccurring through new intermediaries, often funded or owned by many familiar people (Allen, 2022; Marlinspike, 2022). What this means is that the meanings and practices of decentralization in Web3 are hot sites of struggle. Decentralization is not composed of static endpoints that are finally secured once and for all, but rather of dynamic relations that must be constantly reasserted over and over again.
While there is stark asymmetry in the contest over defining and doing Web3, we should be careful not to flatten or erase actual differences in approaches that exist within this broad tent. Much as Lana Swartz (2018) work on the cultures of Bitcoin, for example, revealed significant differences in the “techno-economic imaginaries” of crypto advocates, especially early in Bitcoin's existence before one approach gained dominance. In our research, we have also seen two vastly different politics of decentralization in Web3. While they are loosely aligned under the idea that Web3 delivers decentralization as a normative social good, they otherwise differ in their interpretation of the structure, use, and purpose of decentralization. More fundamentally, they are divided by their political values and how those values should translate into technological practice. Our observation also aligns with the idea of “competing logics” that Margie Cheesman (2022) found in her ethnographic work on the use of blockchain in humanitarian contexts, which advocates “proposed as a tool to empower marginalized groups, including refugees” (2022: 135). While advocates were confronted with the same problems and wielded the same tool—in this case, border politics and blockchains—their “competing discursive logics” regarding core issues, including “the neutrality of the technology” and “economic models for digital identity,” resulted in radically different conceptions and proposals for the techno-politics of distributed ledgers, digital identity, and refugee aid (Cheesman, 2022: 136). In the following subsections, we draw out a more general distinction within Web3—as both aspirational visions and actual practices—between competing political logics of decentralization that we call extractive and expansive networks.
Extractive networks
Extractive networks, simply stated, are those which levy “decentralization” as a primarily technical tool for creating, capturing, and circulating financial valuations. We use the term “valuations” to mark that any “value” here (e.g., the market cap of a crypto coin or price of an NFT) may not be tied, fully or partially, to the real economy (i.e., nonfinancial) or backed by liquid assets, but may just be representations of speculative capital. The next section will explore these dynamics in more depth. Exemplified by DeFi applications, extractive Web3 projects facilitate decentralization largely through innovations aimed at reducing frictions in financial transactions, overcoming market limits in the generation of financial assets, and circumventing traditional regulatory and financial institutions (Omarova, 2019). We call this thrust of Web3 extractive because the overwhelming focus is on moving and amassing money; it's innovation in decentralization as a strategy for capital accumulation and everyday financialization. “To put it simply, in a fully frictionless world of blockchain-powered transaction processing, overtly speculative trading will also be faster, easier, cheaper, and thus more voluminous” (Omarova, 2019: 780).
Within extractive networks of Web3, social practices are reduced to economic logics and governed by technological mechanisms. “Communities” exist to support the infrastructure of the machine, creating an inflow of capital, labor, and liquidity to support its operations. The individual is reduced to a “nobody,” said Red Foreman (2022), community manager for Web3 startup Harvest Finance, at the ETHDenver 2022 conference. “Stripped of these identifiers [like age, race, and gender], I am what I contribute.” It's a social existence based on your contributions to the machine, your interactions with DeFi services, and your transaction history on an immutable ledger. A recent
Expansive networks
On the other side of the dichotomous divide are expansive networks that seek to repudiate extractive logics—some more explicitly than others—by building alternative projects and communities within Web3 based on different normative approaches. In practice, decentralization is an organizational choice that either solves existing structural problems or else expands current structural capacities. Whereas extractive ecosystems tend to subsume social phenomena into technological processes, expansive communities tend to do the opposite, constructing social networks that can best be devised through the mechanism of technological decentralization. The result is an environment that tends to prioritize social openness at the expense of operational efficiency, intentionally creating friction through democratic governance processes and other elements of complex social networking. We should note that, even as we argue for recognizing these competing logics, we remain skeptical of even the most intentionally pro-social or leftist ideological projects to deliver something useful. They largely exist as intellectual endeavors and thought experiments. Their material achievements are difficult to ascertain, especially compared to the real effects of Web3 as a whole. Regardless, we argue for a critical analysis of technopolitics that confronts how different arrangements of technology and politics can exist at the same time, side-by-side, in complicated ways.
To help illustrate how these kinds of expansive networks are attempting to form, and the progressive values they seek to advance, we point to a recent “artifact” titled “Towards a Digital Pluriverse” and created by a collective called Verses in 2022. This artifact is composed of three parts. First, an essay arguing for radical epistemic pluralism in the metaverse(s), which sits somewhere between the white papers that are ubiquitous in Web3 organizations (Corballis and Soar, 2022) and the manifesto of a political movement. This essay builds directly on theory and practice from the Zapatista movement—an “Indigenous community in Mexico who have built a de facto autonomous system of self-governance in noncontiguous territories of the state of Chiapas”—and applies that analysis “to ground this dream of digital pluriversality” (Verses, 2022). Second, a series of eight sets of “patterns,” with “each describing a problem and the core of a solution, illustrated with examples,” which form the basis for a larger, living “pattern language” for an expansive Web3 ecosystem (Verses, 2022). The framework originated as a philosophy for community-centric, common-oriented, bottom-up design in architecture (Alexander et al., 1977) and has since been applied much more widely in computational domains like the structure of wiki software. Third, at time of writing, 7568 signatures from supporters (or “members of the Pluriverse community”) using their unique blockchain wallet addresses and 7457 “contributions” in the form of comments responding to the essay, patterns, and project. Based on the combination of niche audience and blockchain address, we can assume that the vast majority of signatures are coming from people actively working within some area of Web3, thus showing there is a growing community of discontents outside the mainstream of extractive projects built by corporations and backed by venture capitalists.
Overall, the Pluriverse project situates itself as the dialectical opposite of the version of the Web3 Metaverse being built by platforms like Meta/Facebook where data extraction and monetization is a driving force (Egliston and Carter, 2022) and by startups like Decentraland that are playing out colonial fantasies by creating, enclosing, and selling “virtual real estate” tied to NFTs (Ravenscraft, 2021). Instead, Verses aims to advance an alternative for Web3 “stands in contrast to existing applications of blockchain technology, which often emphasize speculation, and create artificial scarcities of capital and attention” (Verses, 2022). While we have our own qualms with approach and aims of Verses and the Pluriverse project, we present it as exemplary of the type of expansive networks that are still nascent but garnering grassroots support for their radical approach to decentralization and Web3.
We call these networks expansive because of their progressive goals of plurality and inclusion—by which we mean multiplying the sociotechnical spaces, connections, and possibilities available to all people. In other words, it is a vision based on thinking critically about how decentralization via Web3 could contribute to creating “a world where many worlds may fit,” to quote the Zapatista slogan used as the epigraph in the Pluriverse essay (Verses, 2022). These values are contrasted by the form of “financial inclusion” often used to promote extractive Web3 projects, which in reality looks more like using rhetoric of access to capture new markets and enroll new consumers, many of whom are vulnerable or disadvantaged, into DeFi products and platforms (Guo and Renaldi, 2022). Although these expansive communities tend to be quite open and inclusive, their relative lack of visibility in the broader Web3 ecosystem is largely due to two related reasons. One is sociotechnical in nature: the longstanding difficulties of scaling robust social projects with equally robust decentralized tools. The other is political economic: the vastly uneven investment and attention expansive networks receive compared to more extractive projects.
We have tried to explicitly acknowledge the diverse range of motivations and ideals that inform why different people get into Web3 and how different communities form within Web3. It can be easy to ignore this multiplicity and present the Web3 movement as a singular mass. This flattening tendency is caused by the significant asymmetry in who possesses power, capital, and influence in Web3, and how it is wielded, for which goals, and with what consequences. It is crucial that we understand both the broader network and the bigger nodes within it. While cyberlibertarians are hugely overrepresented, it is also true that many people are drawn to Web3 by a variety of purposes and possibilities. At the same time, these divisions are not equal. The particular interests of specific individuals and institutions are working hard to ensure their preferred outcomes for Web3 are overdetermined.
Capital: Fictitious, real, venture
The paradigm shift to Web3 is not a peaceful transition of power brought about by democratic means of debate and deliberation. The most ardent supporters of Web3 frame it as more like a technopolitical coup focused on toppling the old giants of tech and finance, grabbing power away from them, and building a new order without them. This does raise some internal contradictions as many of the venture capitalists and tech companies who reigned over Web 2.0 now appear to be couping themselves in the course of trying to lead the march of Web3. That said, this rhetoric is not all just bluster. Companies focused on Web3 are now awash with cash and are eager to spend it on supporting their interests and promoting their images. Consider just the multibillions of dollars spent by cryptocurrency companies on advertising and branding in only the last year. The success of this influence campaign is essential to the sudden inescapable ubiquity of Web3 technologies and visions, and to Web3's sustainability in the face of an ongoing market crash in cryptocurrencies.
Digital systems like blockchains provide an anchor for the assets and visions of Web3, but the capital and value at their foundation is largely fictitious. Here we mean fictitious in the financial sense of “money that is thrown into circulation as capital without any material basis in commodities or productive activity” (Harvey, 2006: 95). Fictitious capital is not quite money for nothing. It's money from property rights, financial engineering, or speculative value. It is money represented by numbers in a spreadsheet. It is claims on money now, which is expected to be (but may never actually be) realized later.
There is a powerful focus on financialization in Web3 (Bogost, 2022). Or, using these technologies to further spread dynamics of assetization, monetization, and speculation at the individual transactional level, which then have complex systemic effects (Allen, 2022; Omarova, 2019). While that is not always the (explicit) purpose of projects, unsurprisingly, it is likely to be the focus of projects that receive the most investment and attention. As Omarova (2019: 742) observes, the Web3 DeFi innovations we are discussing here now “enable private market participants to engage in the continuous synthesizing of crypto assets that are (a) effectively untethered from, and thus unconstrained by, any productive activity in the real economy and (b) tradable in potentially infinitely scalable virtual markets.”
Importantly, the fictitious and the real are not identical, as if they were two interpretations of the same economy. Nor do they exist in isolation, as if they are two parallel economies. Instead, they are intertwined, with financial activities focused on the fictitious increasingly dominating the conditions of the real. Omarova lays out how the risks created by complex products created for sell and trade in secondary financial markets can (and do) spillover into the real asset economy through interlocking mechanisms with disastrous, systemic effects. “The key risk posed by fintech lies in its (still not fully known) potential to exacerbate the financial system's dysfunctional tendency toward unsustainably self-referential growth” (Omarova, 2019: 742). Meanwhile the returns from these fintech products largely go to professional investors, portfolio managers, and startup founders. Capital invested in engineering innovative financial technologies may result in the development of material assets and services—for example, artificial intelligence systems, blockchain protocols, software apps—but their market is the financial economy, not the real economy of material production.
Venture capitalists (VCs) are in the business of creating and circulating fictitious capital. Venture capital is the lifeblood that sustains the Silicon Valley model of investment and innovation (Nicholas, 2019), which has been exported worldwide (Klingler-Vidra, 2014). Without VCs the “global innovation landscape” would look drastically different (Lerner and Nanda, 2020). Venture capital is not only a mechanism for financing nascent ideas. VCs also “drive management and strategic decisions towards long-term corporate gains” (Klingler-Vidra, 2016: 695). The top investors decide which ideas are worthy and how much they are worth. We can see how this plays out in the valuation of startups. When a company is publicly traded, its business valuation is most simply the calculation of its market capitalization, or the company's share price multiplied by its outstanding shares. However, when a company is privately held, its business valuation is often reported in terms of investment in the company. So, for example, when a technology startup receives VC funding and is then reported to have a valuation of $1 billion that number is not the company's current net worth (total assets minus liabilities). The actual money capital invested might only be $10 million for a 20% share, which translates to a current day valuation of $50 million. The headline number of $1 billion is a projection based on the VC's business analysis of factors such as user base, growth rate, and market competition, as well as subjective interpretation of general vibes, cultural trends, and entrepreneurial “signals” (Bernstein et al., 2017). It means that the company will (hopefully) be worth $1 billion by a specific point in the future (usually 5–10 years), at which time VCs can liquidate (or “exit”) their position and make a hefty return on investment.
As David Harvey explains, “Money capital is invested in future appropriation. From the very outset, therefore, the money capital advanced has to be regarded as fictitious capital because it is not backed by any firm collateral” (Harvey, 2006: 267). So while real money is invested, it then multiplies and circulates as fictitious capital. The startup might then be able to borrow more money and/or sustain heavy long-term losses based on the fictitious capital created in the valuation process. “Capital is value in motion and any pause or even a slowdown in that motion for whatever reason means a loss of value, which may be resuscitated in part or in total only when the motion of capital is resumed” (Harvey, 2017: 73). As fictitious capital continuously moves through this financial system, circulating with increasingly more velocity and volume, its value appears to be “doubled and tripled,” Marx (1993: 603) writes in
Web3 in the desert of the real
It is worth reiterating that just because capital is fictitious does not mean its effects are unreal. Far from it: fictitious capital shapes our world in important, material, and legally enforced ways. This is similar to how expectations for the future still have concrete effects on the present through their influence on people's desires, beliefs, actions, and plans (Borup et al., 2006; Sadowski and Bendor, 2019; van Lente et al., 2013). The hype cycles and liminal technologies of Silicon Valley—which exists in that space between “marketing and materiality, imagination and implementation, becoming and being” (Sadowski and Bendor, 2019: 541)—depend on navigating the journey from fictitious to real. These social fictions, like other matters of belief, are supported by people treating them as real and acting accordingly. Tinkerbell, like these technologies, only exists when we believe hard enough and clap loud enough. In practice that looks like VCs, founders, and other advocates of Web3—who often have significant material interests wrapped up in Web3—demanding that everybody buy, trade, use, promulgate, support, and organize their lives around the technological, social, political, financial systems of Web3.
It's ironic that fictitious capital has such a defining role in the development of Web3 considering that cryptocurrency boosters call regular money “fiat” in an effort to emphasize that its value is just based on faith. The fictional decrying the faithful. Of course, this is not quite true since the value of “fiat” money is actually backed by the power of state institutions. The more powerful the state, the more powerful the money. To put it simply, the US Dollar is not the global reserve currency because people have the most faith in the value of this green paper. It's because the United States is a global hegemon that controls financial markets, international politics, and a nuclear arsenal. The corresponding political economy of Web3 is one where startups replace states: the more powerful the startup, the more powerful the crypto. We are meant to have faith in the value of these digital assets and the visions of VCs.
The fictitious foundations of assets and visions at the center of Web3 greatly contribute to their high volatility. They are super sensitive to public perceptions, which translate directly into monetary valuations. This manifests in major swings in the price of Web3 digital assets (e.g., cryptocoins, tokens, NFTs), which are often predicated on seemingly minor causes. All it takes is a tweet by Elon Musk mentioning dogecoin or a Super Bowl ad with only a bouncing QR code for Coinbase to then send the price “to the moon.” Similarly, just the murmurs of regulation, or simply boredom among users, can cause these visions to come crashing back down to Earth. As Paris Marx (2022) observes, “And the salesmanship worked: The price of bitcoin soared from about $9000 in March 2020 to its peak of nearly $70,000 in November 2021.” A couple months later, Bitcoin's price cratered to nearly $35,000 in January 2022, slowly climbing back up to around $47,000 in late March 2022 before crashing again to $19,000 by mid-July 2022.
The wealth of Web3 can evaporate into nothing even more quickly than it grew
The wild roller coaster ride of valuation is not the result of material destruction in the underlying assets, but of capricious sentiments in the secondary financial markets or undeniable revelations about activities in those financial markets. As Karl Marx wrote in his analysis of fictitious capital, “profits and losses that result from fluctuations in the price of these ownership titles […] are by the nature of the case more and more the result of gambling” (Marx, 1993: 609). The wealth of Web3 now presents itself as an immense accumulation of ownership claims over digital assets like NFTs and crypto tokens (Woodall, 2022).
This technofinancial system—with its heightening tendency toward hyper-accelerated cycles of boom and bust—creates the perfect conditions for market manipulation. Various schemes and scams run amok in the Wild West of Web3 (Gilbert, 2022; McKenzie and Silverman, 2022; Ongweso Jr., 2022). However, our main concern here should not only be the small-scale grifters, or even the coordinated actions of online communities, inflating the price of a digital asset and then cashing out. The more serious capabilities for systemic manipulation are held by the “whales” of the world (Banton, 2021). These are the people and institutions who possess large amounts of power and wealth, who are able to significantly affect markets with large-scale movements of capital, and who wield the capabilities to the benefit of their interests and guided by their ideas for the future. They are not concerned with the get-rich-quick schemes. They are consolidating their control over the system by constructing the infrastructures and imaginaries that form Web3. “Use-values must therefore never be treated as the immediate aim of the capitalist; nor must the profit on any single transaction. His aim is rather the unceasing movement of profit-making” (Marx, 1990: 254). Their goals go beyond market manipulation; they want to make, manage, and monopolize the markets.
Making investments, defining innovations
Marc Andreessen is not the richest or most famous person in Silicon Valley. However, he has been one of the most influential, and is essential for understanding the flows of capital that are midwifing Web3. Indeed, it is hard to overstate the degree to which Marc Andreessen has played some kind of core role in every phase of the internet. From his early days as a programmer co-creating Mosaic in 1993, the first graphical web browser that is credited with popularizing the Internet and was later licensed by Microsoft to create Internet Explorer. To then an entrepreneur co-founding Netscape in 1994, one of the first companies that capitalized on the internet, going public shortly after in 1995. As a 2005 profile in Fortune Magazine put it, “Netscape mesmerized investors and captured America's imagination. More than any other company, it set the technological, social, and financial tone of the Internet age” (Lashinsky, 2005). As we enter Web 2.0 in the mid-00s, Andreessen becomes an investor. First as an angel investor then as a venture capitalist, forming in 2009 the ultra-influential VC firm Andreessen Horowitz (also called a16z). During this time, the firm invested billions of dollars in big name tech companies like Twitter, GitHub, Foursquare, and Skype. In addition to serving on the boards of many companies and organizations, especially relevant for our purposes is that Andreessen has been on the board of Facebook (now Meta Platforms) since 2008.
Today, Andreessen Horowitz has taken a lead role in shaping, supporting, funding, pushing, and lobbying for Web3 as
We note three important aspects in how Andreessen Horowitz (specifically) and venture capital (generally) are driving the political economy of Web3. What follows is a broad outline that sets the stage for future research focused on further fleshing out these systems and dynamics. First, their massive war chest, which is dedicated to bankrolling the development of Web3. Second, their political lobbying, which is dedicated to establishing the legitimacy of Web3. Third, their hype machine, which is dedicated to pushing the inevitability of Web3.
Over the last year or so, as VCs raise immense funds that are earmarked for crypto and blockchain, investments in startups related to Web3 have skyrocketed. (It's worth noting that fimrs like Andreessen Horowitz explicitly equate Web3 with crypto and vice versa, showing where their real interest lies.) As Crunchbase reports, “[2021] saw about $17.9 billion invested in 1312 deals in blockchain-related startups. That number dwarfed the $2.1 billion in 790 deals in 2020, and even the former high of $4.4 billion in 1223 deals witnessed back in 2018” (Metinko, 2022). Among the largest of these funds is Andreessen Horowitz's $2.2 billion Crypto Fund III, which was announced in June 2021 in the aftermath of the firm's extremely lucrative exit from their investment in Coinbase after it went public in early 2021 at a total share value of $85.8 billion (Pardes, 2021). Well, the largest until Andreessen Horowitz announced in May 2022 their $4.5 billion Crypto Fund IV. In the midst of a market spiral for crypto, Andreessen Horowitz is doing what can be described as VC Keynesianism: they are trying to combat a recession, or “crypto winter,” by heating up the Web3 economy with continual infusions of capital.
General partners at Andreessen Horowitz explain their goal is to “find the next generation of visionary crypto founders” because “crypto is not only the future of finance but, as with the internet in the early days, is poised to transform all aspects of our lives” (Dixon et al., 2021). Andreessen Horowitz is far from alone in putting their money where their mouth is. Many other venture funds are raising hundreds of millions of dollars with similar goals of pumping cash into Web3. “It's time to build,” proclaimed Marc Andreessen (2020) at the beginning of the pandemic. In 2022, this commitment to investing in visionary technology looked like Andreessen Horowitz leading a $450 million funding round for Yuga Labs, the startup behind the Bored Ape Yacht Club NFTs, at a valuation of $4 billion (Kastrenakes, 2022). While this is a ludicrous amount of money (both real and fictitious), it is also common to now see brand new Web3 startups receive many millions and be valued at billions. The amount of free money sloshing around, looking for places to be invested and burned, suggests that the primary force propelling Web3 is the momentum of capital.
Alongside these steep investments in Web3 technologies is a sudden rise in lobbying for Web3 politics. According to a recent report by Public Citizen on the cryptocurrency lobby in Washington DC, the number of lobbyists representing crypto has tripled over the last few years and the amount spent on lobbying for the crypto sector has “quadrupled from $2.2 million in 2018 to $9 million in 2021” (Claypool, 2022). While these amounts are nothing compared to the money VCs are burning on startups, politicians come cheaper. In addition to industry groups like the Blockchain Association and the Chamber of Digital Commerce, Andreessen Horowitz wants to have a strong hand in shaping how rules are made for digital assets like cryptocurrency and establishing legal legitimacy for the foundations of Web3. “To push its agenda,” reports the
VCs might be sources of patient capital (Klingler-Vidra, 2016), but they are not necessarily passive investors. In addition to advising and guiding companies, they also work to generate interest among other investors and expectations among the public. Producing hype about a technology or trend is crucial for growing its value—real, perceived, and speculative (van Lente et al., 2013). Indeed, an elite tier of firms like Andreessen Horowitz can garner reputations for being kingmakers and create self-fulfilling prophecies where the very act of them investing in a startup, or showing interest in a particular kind of innovation, can generate higher levels of value. While the number of VC funds is expanding, increasingly the vast majority of capital is concentrated in a small group of very large funds controlled. These deep-pocketed funds then act like gatekeepers for financing technological development (Lerner and Nanda, 2020). “A vicious circle emerges, allowing these few [investors] to collect more capital, be more attractive for high-potential startups, and, with their network and experience, effectively not only pick but create winners, which again increases returns and overall attractiveness” (Cooiman, 2021: 6–7). Moreover, through their investment decisions, influenced by their own financial interests and time horizons, they make choices about what kinds of technologies count as “high-potential.” “Thus, while venture funding is very efficacious in stimulating a certain kind of innovative business, the scope is increasingly limited” (Lerner and Nanda, 2020: 248). This creates a reverse cycle where innovation becomes defined as what VCs will fund. Progress becomes defined as what VCs want.
Conclusion
In an essay analyzing the emergence of Web3, Evgeny Morozov observes that, to an even greater degree than the ecosystem of boosterism and buzzwords supporting Web 2.0, this new movement is deeply reliant on “
We have sought to provide a critical analysis on Web3 that goes beyond common explainers by taking a deeper view of Web3's development. The oft-repeated origin story of Web3 as an algebraic sum of Web1 and Web2 serves as an effective strategy for deterministic mythologizing. The evolution moves from
Developments in Web3 moved at an accelerated pace due to the mass of interest and capital pushing it forward, while also pulling it toward certain pathways and away from others. The innovation cycle for Web3 appears to have been extremely compressed, even by the standards of Silicon Valley: going from birth to apex to crash in record time. As we have argued, Web3 was not an anomaly, but rather a product of the tech industry and venture capitalism that articulated broader patterns that existed before and will persist after Web3. The innovations may die, but the model that produced and profited from them will live on. Treating Web3 as more than a curiosity allows us to draw larger lessons from its dynamics and impacts that may be relevant for the next wave of big ideas in tech.
Future analysis would benefit greatly from more systematic frameworks for evaluating technological projects. More specifically, such normative assessments should not only be informed by negative conclusions based on stringent critique, but also positive visions based on robust empirical and theoretical study. It is certainly valuable to analyze why/how projects go wrong, but we should also have clear ideas of why/how they could succeed—even just as a benchmark for comparison. And, in the example of Web3, if the conclusion is that there's no way they could succeed and should not even be attempted, then we must also be very clear about those arguments. In other words, if there are actually no insights or tools of value to be found in Web3, then at least we would have done the work of sifting for gold (or at least something useful). While the simplest approach might be to just avoid technologies like Web3 at all costs, this will be unsatisfying and unconvincing for many who are curious. As tempting as it might be, it would be too easy to condemn every element of the system and let Saint Peter sort out the good ones. The tough yet necessary task for normative analysis is to discern when to advance ruthless criticism and when to provide critical support for technological projects—and the strongest way to do both—whether under the umbrella of Web3 or the next things to come.
Footnotes
Acknowledgements
Declaration of conflicting interests
Funding
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