The future of web3 is centralization

By William Entriken

3 minutes

And so was the past. A fairer title here would be “the future of digital-signature-based commerce (or ‘blockchain’) will still rely on custodians”. But we’re writing blog posts here, people, not dissertations!

The discussions

This question comes up so much, posting here as-is (with permission):

Hi - Thoroughly enjoyed your talk at Google, thanks for giving it. I still have this issue that I’m trying to wrap my head around, which is how/if the world will ever make the move from the custodial world we live in (my bank, my trading account, etc) to a world where I have a single private key and really “own” these NFTs. My concern is that all of this great stuff in terms of smart contracts or even Vitalik’s idea of a soulbound NFTs ASSUME that we’re all going to suddenly bind ourselves to our own private key that we have to guard with our lives, only to be subject to all the rules of what I can sell, when I can sell, and what transaction fees I have to pay.

Instead, I can put my trust in Coinbase, or whoever else in the long run comes up. For that I get: * Not needing to worry about private keys. * Being able to sell to whomever I want and skirt all the blockchain rules.

Can you help me understand this / do you have a perspective?

DM with

And the response:

Thank you! This is very much my pleasure, I’m hoping to do it again. You have a great question—and underneath you have a great understanding already on this because the dichotomy is leading to the question.

In general, I want to say business processes don’t change, only business methods change.

People are already very used to not having direct custody of things. This is true for thousands of years. When people have a thing, they are very happy to own it beneficially but then also give custody to someone else.

When handing the thing to somebody else, you lose custody. But there are some offsetting benefits. This is true with hard assets, money, and digital assets.

Therefore, with crypto we are seeing people take self-custody by default only because: a) Early adopters are special and like risks, and have different value propositions b) The mainstream adopters that are coming next don’t know any better.

End result is crypto, or anything else, will not make humans as a whole suddenly value asset custody a lot more than they have over the past thousand years.

And see also Community Service Hour with episode 26 for a long discussion on this topic.

Human business models, a brief history

I have no idea who I paraphrase-stole this quote from

Business models don’t change, business practices change.

Since ages ago, commerce and reputation have been aligned very closely. You want to buy apples, I’m selling apples, you assess my reputation, and then you buy. Both of us walk away with some risk, you of getting a bad apple, me of some retribution if I sell you a bad apple. Other risks include fake consideration (money, barter) for the purchase.

And more recently, basically all transactions are based on bank credit. From a practical perspective, maybe as the buyer you feel like credit cards are just a payment method. But actually this makes the payment negotiable since a third party can reverse the transaction at any time. Also, even establishing the transaction requires both of us to be entities known to a third party (the bank). Bank draft (“check”) payments work the same way but with lower fees and a harder process to reverse. There is a fee for using this intermediary.

Let’s take a little look at the reputations. You can see reputations at first glance (punched-out black eye, missing hand), from an obvious visible investment (expensive permanent structured fruit stand) or the gold standard… one of your friend’s endorsements.

And the future

Blockchain, crypto, “web3” (whatever that is) will not change the business model everybody wants to use. At the moment we are seeing a selection bias because so few people now directly use blockchain. Then next million that come online will be a lot different than the first thousand.


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