Fallout from the cratering of Sam Bankman-Fried's FTX is casting a giant pall over the decentralizing project known as Web3.
Catch up quick: Over the past two years, some cryptocurrency enthusiasts and their venture-capitalist backers expanded the scope of their dreams.
- They weren't just revamping the global financial system — they were inventing entirely new ways of organizing human relationships, online and off.
- They dubbed their vision "Web3" and raised piles of money — to the tune of tens of billions of dollars — to build it.
Now FTX's disintegration means they're going to have a much harder time winning public confidence for their plans.
The big picture: While financial sleuths work overtime to figure out where all the money went in FTX's wreckage, and nervous investors worry about how the collapse will affect contiguous markets and services, the tech world is coming to terms with a different kind of contagion of mistrust.
Web3, at its heart, is all about using blockchains and crypto tokens as tools for organizing decision-making, governance and financial incentives in every realm of human endeavor — from virtual world-building to social networking and from accounting to art-making.
FTX was just a financial exchange — its operations barely touched the surface of the kinds of crypto-backed enterprises Web3 architects have imagined.
- Web3 true believers will point out that the failure of a trading platform that played fast and loose with its customers' money shouldn't discredit still largely untested blockchain-based ideas.
But to outsiders, FTX's failure suggests that the crypto world hasn't even arrived at square one of its vision.
- If crypto can't even get the foundational stuff right, like managing trading and handling customer assets, there's little reason to trust it with any other dimension of our lives.
Yes, but: When the dotcom bubble burst two decades ago, a ton of people wrote off the entire internet as a lost cause.
- That was a big mistake. Web3 builders will be hoping for a similar turnaround.
My thought bubble: In 2000-2002, people kept using the internet through a financial disaster because the network provided plenty of opportunities to do useful, cheap and fun things.
- If Web3 has any future, it will need to give users more to do than buying cheesy-looking NFTs and losing money on tokens.
The bottom line: Axios' Felix Salmon wrote Monday that crypto entrepreneurs' dream of supplanting the world's existing financial infrastructure is now dead. It's also likely that their wider Web3 dreams will never come to life.
