Web3-- a revolution in decentralization or a commercial head feint ?

When this Kat taught computer law in the 1990's (which primarily meant software law), the main issue was how far copyright protection would apply to cover functional features. Generally, the courts first recognized broad protection (notably, the 1986 Whelan case in the U.S.) but then cut back (the 1992 Computer Associates decision in the U.S.) The legal principles developed remain largely applicable today.

But the computer/online world has moved on from a focus on protecting computer software to a different kind of struggle: what is the locus of control? Is it centralized or decentralized; are there anticompetitive effects; is there market concentration?

An article in The Economist offered a perspective in its January 29th piece, "Rewebbing the net". It is useful to examine this narrative. First, consider what the article calls "the history of modern computing". It writes:

The history of modern computing is of a constant struggle between decentralisers and recentralisers. In the 1980s the shift from mainframes to personal computers gave individual users more power. Then Microsoft clawed some of it back with its proprietary operating system. More recently, open-source software, which users can download for nothing and adapt to their needs, took over from proprietary programs in parts of the industry—only to be reappropriated by the tech giants to run their mobile operating systems (as Google does with Android) or cloud-computing data centres (including those owned by Amazon, Microsoft and Google).

Well, okay, but perhaps a bit distorted. In the beginning (with apologies to Genesis), there was the mainframe, whose business proposition was the lease of the machine, with software an afterthought with no separate business proposition. Later on, centralization at the PC level was initially both a hardware and software phenomenon, what we used to call WinTel (a portmanteau word based on Windows and Intel), where each became a de facto standard in its own space, Microsoft in the operating system and Intel for microprocessors).

But even before software became a commercial proposition with its own market power (and lush profits), a countermovement arose, what we call open-source software. The first iteration—Unix, treaded water, largely because it split into different versions. But later open-source programs, such Linux, tend to avoid the problem. The result: both proprietary and open-source operating systems took hold.

So, against that background, was the tale so far one of centralization, concentration, or de facto market standards? If two operating systems meet your standard for decentralization, then perhaps that is what it was, at least to the extent that users who sought relief from Microsoft felt that there was a reasonable alternative.

But to this Kat, these developments seem more to have been a situation of standard-setting in the emerging digital world, where network effects and locking-in users tended to move in tandem. In such a case, even if there may not have been anti-competitive effects in the classic sense (read: artificially high consumer prices), the arrangement points to a form of market concentration, which may or may lead to undesirable effects.

As for the argued-for reemergence of centralization, the piece focuses on the rise of the FAANG (Facebook (now Meta), Amazon, Apple, Netflix, and Google (now Alphabet), or FAAMG (where Goldman Sachs added Microsoft and demoted Netflix) companies. If this is an indicium of greater concentration, it is of a distributed kind across various industries, each with a dominant company. And, even here, the FAANG/FAAMG companies are increasingly leaving their distinct silos and treading on the zone of activity of the others.

That brings us to web3. The article describes web3 "…as a better, more decentralised version of the internet, built atop distributed ledgers known as blockchains" (think bitcoin and NTF's, see e.g., here).

As for how web3 fits into the conceptual scheme contained above, the article had this to say.

The web3 movement is a reaction to perhaps the greatest centralisation of all: that of the internet. As Chris Dixon, who oversees web3 investments at a16z, explains it, the original, decentralised web lasted from 1990 to about 2005. This web1, call it, was populated by flat web pages and governed by open technical rules put together by standards bodies. The next iteration, web2, brought the rise of tech giants such as Alphabet and Meta, which managed to amass huge centralised databases of user information. Web3, in Mr Dixon’s telling, “combines the decentralised, community-governed ethos of web1 with the advanced, modern functionality of web2”.

This is possible thanks to blockchains, which turn the centralised databases to which big tech owes its power into a common good that can be used by anybody without permission.

On the one hand, the acoustics of this characterization ring of extreme decentralization, creating, it is claimed, the ultimate common good, where all barriers are, in effect, removed. Dixon cannily couches the essence of web 3 as taking the best of the past and, if not creating something dialectically novel, at least recombining them in a socially beneficial fashion. As such, it may not be simply more of the same, but it is also not a full-scale assault on the existing technological order.

Mr. Dixon is, however, not a disinterested observer (the article describes him as "oversee[ing] web 3 investments"). Moreover, the article goes on to argue that the business proposition of web 3 may ultimately depend on the same centralization and lock-in that it purports to decry. As the article quotes technological guru, Moxie Marlinspike—

If something is truly decentralised, it becomes very difficult to change, and often remains stuck in time. A sure recipe for success has been to take a 1990’s protocol that was stuck in time, centralise it, and iterate quickly.

Call it lock-in or centralization, Marlinspike's prediction foresees many of the same requirements for commercial success continuing to apply. Seen in this way, a 50-year view of software, computers and networks shows less oscillation between centralization and decentralization, and more continuing iterations on how to create dominant standards and lock-ins without drawing any legal flack for deleterious market concentration.

Picture on right is Peretz Partensky and is licensed under the Creative Commons Attribution-Share Alike 2.0 Generic license.

Picture on the left is by User: Mysidand has been released into the public domain