Guide to Crypto and Web3
Big claims are being made for the potential of crypto and web3. We have engaged in a multi-month project of research and analysis to "make sense" of crypto and web3 and to evaluate the various claims being made for and against.
We have spoken with technologists, economists, computer scientists, crypto skeptics and crypto enthusiasts. Much of the resulting material is published on this site. The culmination of our efforts is this guide.
It is important that we make good choices about crypto and web3. Ultimately, we must decide whether to support, improve or restrict them. And to do so in as constructive, intersectional and depolarizing way as possible. This guide is a resource for doing so.
The guide is split into 3 sections:
Full analyses provide comprehensive and authoritative analyses of the biggest claims being made in the space. We analyse the following claims:
Deep dive notes are detailed analysis notes from our deep dive conversations, which have not yet been formatted and expanded into full analyses. You can help! We've undertaken deep dives on the following claims:
- Blockchain can (and should) be used to create “networked states” to replace existing nation states
- Crypto can act as an anti-authoritarian force
- The crypto space is just an unfettered market, and there’s nothing wrong with that
- Crypto is just the latest evolution of fintech, and is leading us towards a better financial system
- Crypto should remain outside of securities regulation
FAQs are brief responses to some common questions asked about crypto and web3. They form a useful starting point for further research, such as reading their references in our library.
Before getting started, it's worth ensuring you're familiar with these basic concepts, as they will underpin a lot of the analysis below.
These provide detailed and fully referenced analyses of some of the boldest claims being made about web3 and crypto. They are capable of acting as authoritative sources in debates about these claims.
Claim: Bitcoin will (and should) become the new gold standard
Bitcoin is a digital gold, a gold standard was a good idea, and thus that a "bitcoin-standard" – i.e. a new gold-standard built on bitcoin – is a good idea.
Subclaim 1: Bitcoin is better than gold
Bitcoin is a better gold: it shares the features of gold which make it a good choice for a currency (or something to peg a currency to). In addition, Bitcoin has specific features which may make it better than gold
Subclaim 2: The gold standard is a good idea
This is for two reasons: First, because it reduces the scope for governmental or central bank intervention in the money supply. Intervention is bad because it leads to inflation which is harmful to the free market and commerce. In addition, Second, more philosophically, government / central bank intervention in the money supply is inherently undemocratic; the will of the few imposed on the many.
Evaluation: False (high confidence)
Both key sub-claims are weak and since both are required the overall claim for a bitcoin-standard is very weak. Bitcoin does not resemble gold as a store of value. The gold-standard was deflationary and dysfunctional especially in times of economic stress and a bitcoin-based gold standard would be worse.
Bitcoin has no consistent track record of being a reliable store of value, it's price movements are extremely volatile and thus is not a reliable place to store value on long time scales. Bitcoin's price behavior is uncorrelated with gold and is largely correlated with the broader stock market making it an unreliable safe haven in times of market volatility since it is directly exposed to the price action of the Nasdaq.
Bitcoin has limited track record of being a store of value and lacks the millenlia of history that gold as a commodity has achieved. Unlike gold it also lacks a use-value for the physical asset which consistently generates demand. Bitcoin also has a upkeep cost in the form of mining which forces the asset to behave like a negative-sum speculative asset instead of a store of value.
Further, The gold-standard and the notion of sound-money are undesirable foundations for a currency and were subject to extreme shocks and deflationary spirals. As such they were abandoned in the mid 20th century in favour of the central-banks and fiat monetary system.
See here for our full analysis of the claim: Web3, Bitcoin and Neo-metallism
Claim: Crypto will provide better payment and remittance services
Subclaim 1: Crypto can function as a currency to pay or send remittances with
Payment systems and remittance services need to pay in something. That something must either be a currency (eg dollars) or a commodity (eg cows).
Crypto can provide payment systems and remittance services because it serves the three functions of a currency:
- It can be a unit of account in that it’s a standard and divisible unit of measurement of market value (i.e. it can be used to signal what something is worth).
- It can be a medium of exchange in that we can use it as an intermediary instrument to transact for goods and services.
- It can act as a store of value in that it (at least ideally) retains its purchasing power over time, such that we can retrieve the value of our investment at a later date without making a significant loss.
Subclaim 2: Crypto can provide better payment rails and remittance services
Crypto can provide us with better payment rails - i.e. a better Visa, Stripe etc - and more efficient international remittances. I can send money abroad, eg from US dollars to Indian rupees using crypto. These blockchain-based payment rails would have reduced friction and costs resulting in a cheaper, faster, more efficient service.
Evaluation: Largely false (high confidence)
Crypto assets are not currencies because they cannot fulfill the definition of money.
Since crypto assets cannot function as a currency, they are not useful in building payment rails or remittance services. Crypto assets can be used as an intermediate asset in which trades can be settled in, but this does not serve a technical or financial purpose; it simply introduces an unnecessary conversion step as most things can't be paid for directly in crypto.
In addition, if crypto were to provide cheaper and faster payment rails, it’s likely this will have been achieved not via technological advancements, but by removing safeguards.
We acknowledge that it does seem at least plausible that crypto assets are currently supporting financial activity in certain highly unstable and dysfunctional economies, as the example of Ukraine seems to show. However, it is problematic to use this observation to argue that replacing traditional financial infrastructure with blockchain based alternatives is desirable; being better than ill-functioning versions of a traditional system does not make blockchain systems innately superior.
See here for our full analysis: Crypto will provide better payment and remittance services
Claim: Crypto can help solve the public goods problem
Public goods are non-rival and non-excludable (anyone can use this good and someone's use does not diminish someone else's use of the good). The trouble with funding public goods is that if anyone can use this good whether or not they have contributed to the funding or upkeep of the good, how do we motivate people to contribute to the good? This is known as the free-rider problem. Public goods problems thus deal with the problem of how to get people to contribute to things that they have no self-interested incentive to contribute to if left to their own devices.
Subclaim 1: Traditional mechanisms for resolving the public goods problem are inadequate
Public goods provision falls pretty drastically short of where most of us would it like to be.
Subclaim 2: Web3 can raise significant revenue for addressing public goods
Web3 can address the revenue raising problem by creating voluntary incentive mechanisms for the funding of public goods rooted in the free market.
Subclaim 3: Web3 can allocate this revenue more effectively
Blockchain-based innovation in governance has facilitated more effective methods of revenue allocation. Quadratic Funding in particular, a variant on Plural or Quadratic Voting, has been shown to lead to near mathematically optimal allocation of resources across a public goods ecosystem
Subclaim 4: Web3 can do this for reasons that are innately tied to the technology itself
Blockchain is decentralized, is an immutable, public ledger, and creates the potential for tokenization. This can enable democratized investment, facilitate better participatory decision-making and help create instruments which can better capture and financialize the full range of social value versus traditional money or other financial products.
Evaluation: False (high confidence)
The public goods problem is fundamentally one of revenue raising, and Web3 cannot offer any mechanisms to raise revenue which can effectively overcome the free-rider problem at scale. Further, the desirability of the privatization and marketization implied by Web3 solutions is doubtful in the first place.
Web3 experiments may point to better ways of allocating funds which are voluntarily raised, but these do not rely on Web3 technology and are all but redundant when trying to allocate between equally vital public goods under conditions of resource scarcity.
See here for our full analysis: Web3 can help solve the public goods problem
Claim: Web3 can help revolutionize cooperation
This analysis focuses on DAOs as a much lauded way of working better together.
Subclaim 1: Cooperation in the Web3 sphere is in some sense better than the way we tend to cooperate now
Some of the features which are most often lauded in DAOs as an improvement on traditional forms of cooperation:
- Decentralized, participatory governance and ownership
- More fluid forms of association
- Recognition of diverse forms of value
Subclaim 2: Web3 technology provides a unique value add
Blockchain technology can facilitate deep collaboration in the absence of interpersonal relationships of trust. This includes via automating organizational rules via smart contract, and recording everything publicly on an open ledger. Tokenization also acts to recognize more diverse forms of value than in traditional organizations.
Subclaim 3: The unique value add provided by Web3 is sufficient to shift human cooperation more broadly i.e. make this better form of cooperation dominant
The fact that Web3 facilitates flexibly fluid cooperation between potentially large numbers of diverse actors spread across the globe may gesture to a new future of digitally enabled cooperation. These features can make collaborating in this manner sufficiently easier and more attractive that it may begin to outcompete collaboration through traditional organizations.
Evaluation: Largely false (medium-high confidence)
Web3 organizations such as DAOs may well model better ways of collaborating, at least in the context of some private or third sector organizations. The popularity of Web3 may well provide inspiration which has a positive impact on how such organizations are structured or operate in the future, such that there is potential for Web3 to bring about a change.
However, not only are we doubtful that this would amount to a revolution, we note that this inspiration and education is not what the spirit of the claim gestures to. When it comes to the idea that Web3 technology itself will be vital to, and underpin, a paradigmatic shift in how humans cooperate with one another, we can confidently assert that this is false. The more democratic and decentralized forms of cooperation characterizing DAOs have largely existed in other forms, be they cooperatives or Teal organizations, before Web3 rose to prominence. The reason they have not become dominant has not been one of insufficiently powerful technology. Further, unique features of Web3 technology particularly seem on closer inspection to add little to actors’ ability to cooperate effectively that is not already provided by off-chain technologies.
See here for our full analysis: Web3 can revolutionize human cooperation
Claim: Crypto can provide better means of financializing non-financial value
Subclaim 1: More financialization of non-financial value is itself desirable
Financialization is useful as it allows us to effectively direct resources towards the things we care about.
The dysfunctionalities present in our current financial sector are not inherent to financialization itself. It is therefore possible that financial value can be a powerful enabler of other types of value creation without any of the negative impacts on other values (e.g. a well functioning environment) currently associated with money and finance.
Whether we like it or not, we live in a financialized world; our only recourse is to embrace the reality of hyper-financialization and try to make it work for everyone.
Subclaim 2: The current monetary and financial systems are deficient in their ability to capture what we think is really valuable
Value can be better or more extensively financialized than is possible under the current system. Our societies are not adequately financializing value: there is a shortfall of funding for things that matter to us e.g. education and climate change prevention; and there are cases where significant resources are devoted to things that don’t have social value e.g. the whole host of financial instruments totally detached from the productive economy. Left to their own devices markets won’t create a socially optimal allocation of resources, as market prices won’t naturally “internalize” externalities such as environmental damage. Furthermore, positive social impacts, eg of art, are often not internalized into market prices.
Subclaim 3: Web3 technology is the route to addressing these deficiencies
Web3 offers new means of financializing value through tokenization.
NFTs: By locking artistic value into the NFT format and selling this directly to buyers, the true value of art can be better financialized as artists receive financial compensation for their work that is actually commensurate with its value.
Alternative currencies: Communities can come together and decide on the rules for how they represent value. This can be done by creating tokens to represent all sorts of value and, in turn, better manage resource flows between them.
Evaluation: Largely false (medium-high confidence)
Web3 does not seem to provide many plausible means for better financializing value. NFTs have failed to live up to their promise regarding value distribution in practice, and even the theory behind them is spurious upon closer examination. Both the economics and political economy of alternative currencies appear highly questionable such that we have a low confidence in their capability to work in practice. There may be room for them to act as a complementary layer on top of traditional currency systems, for example as enhanced versions of eBay seller ratings carried through wider society. This in one sense might be understood as financializing value better. But, as China’s social credit system shows it is questionable whether this would even be desirable at all, and such systems certainly do not appear to require Web3 tokens to function.
The main reason we are giving our evaluation “medium/high” confidence rather than simply “high” is that we have had to grasp our understanding of how alternative currencies are meant to function in practice from publications by alternative currency projects, which we have found lacking in the meaningful detail required for a deep understanding of how they are intended to function at the social scientific level. Rather than cynically assume that this is because such detail does not exist, we instead wish to acknowledge that we are evaluating an incomplete picture and express our desire to engage those working on alternative currency design in productive discourse.
See here for our full analysis of the claim: Web3 provides better mechanisms for financializing non-financial value
Deep dive notes
These notes are attached to deep dive conversations covering certain claims or sets of claims. They do rigorously analyze the positions they explore, however these analyses are in note form and are thus rougher and less ocomprehensive than the ones above. If you'd like to help improve them then take a look at our contributor guide. For an example of what a complete evaluation looks like, see our analysis of web3 and the public goods problem.
Claim: Blockchain can (and should) be used to create “networked states” to replace existing nation states
This position aspires to transition from the existing US-led international order to a world in which blockchain technology and technocracy are the new foundations for global human governance. This would be achieved by a "networked state", a "social network with an agreed-upon leader, an integrated cryptocurrency, a definite purpose, a sense of national consciousness, and a plan to crowdfund physical territory.”
Full deep dive
The full deep dive episode and accompanying notes can be found at: Web3 and Post-State Technocracy
Claim: Crypto can act as an anti-authoritarian force
Bitcoin (and crypto more generally) is an anti-authoritarian force and can help undermine tyranny by providing a state-resistant payment rail. A global supranational payment system which is censorship resistant against nation state actors would allow parties from any jurisdiction to move value anonymously and with no controls. Via such a payment system, individuals living under oppressive regimes as well as those resisting the regime could receive money and funding from anywhere in the world.
Full deep dive
The full deep dive episode and accompanying notes can be found at: Bitcoin as an Anti-Authoritarian Force
Claim: The crypto space is just an unfettered market, and there’s nothing wrong with that
The trader or market fundamentalist view likely represents a majority of interest and activity in crypto. The ideology encompasses the viewpoint that crypto is about making money i.e. that crypto investing and trading can make those who engage in it a lot of money. More deeply it is the view that the unfettered and unregulated nature of crypto-markets is a good thing and represents a "freer" and better form of financial markets.
Full deep dive
The full deep dive episode and accompanying notes can be found at: Market Fundamentalism
Claim: Crypto is just the latest evolution of fintech, and is leading us towards a better financial system
The fintech incrementalist position is that fintech (financial technology) is a force for effecting change in financial services and building a more stable, efficient and transparent economy. Here we evaluate the claim that blockchain-based financial technology can be a vehicle for more efficient markets through the development of more complex, blockchain-based financial products.
Full deep dive
The full deep dive episode and accompanying notes can be found at: Fintech Incrementalism and Responsible Innovation
Claim: Crypto should remain outside of securities regulation
There is currently debate about how crypto investments fall under the existing securities regulatory framework. Currently, crypto tokens exist partially outside this framework; even many tokens identified as unregulated securities continue to be traded (although as of December 2022 stronger regulation appears on the horizon). Many crypto enthusiasts argue that the space should remain free from this regulation, as this unregulated securities trading is desirable. Thay argue that it enables easier and more democratized equity raising more broadly, and guards agaiunst tyranny by enabling equity raising outside of the rule of law.
Full deep dive
The full deep dive episode and accompanying notes can be found at: We Shouldn't Regulate Cryptos as Securities
Shorter responses to common questions about web3 and crypto. While we’re confident in our views these fall short of full analyses, and we encourage you to use them as starting points for further independent research to draw conclusions. The references for each stub are a good place to begin, as is our curated web3 library more broadly.
- Can crypto just keep increasing in value?
- Is bitcoin a currency?
- Are crypto assets a risk to the dollar?
- What type of asset is a crypto token?
- How do we value a crypto token?
- Are crypto assets a systemic risk to the economy?
- Are crypto assets a bubble?
- Are crypto assets a form of gambling?
- Are crypto tokens an inflation hedge?
- Is private money a desirable system?
- Is bitcoin compataible with ESG investing?
- What consumer protections exist for crypto assets?
- Are crypto assets a form of predatory inclusion?
- Is crypto a solution for the unbanked?
- Is crypto providing faster payment rails or better remittance services?
- Are NFTs good for artists?
- What is the narrative economics of crypto assets?
- Are crypto assets legal?
- Are crypto tokens a negative-sum investment?
- Why do people invest in crypto tokens?
- Is an unregulated transnational payment rail even desirable?
- Are crypto tokens a hedge against the "debasement" of the dollar?
- Can I raise money for my non-profit using crypto tokens?
- Can I do a crowdfunded equity raise for my company using crypto tokens?
- Is bitcoin mining harmful to the environment?
- Is crypto bringing about the "financialization of everything"?
- What is the opportunity cost of crypto?
- Is the underlying technology of "blockchain" useful for non-monetary purposes?
- Is web3 even a well-defined term?
- Is web3 decentralized?
- Is web3 the next generation of the internet?
- Is web3 a means to dismantle the American tech hegemony?
- Is web3 a means to rebuild the global financial system?
- Are crypto tokens a means to accelerate the collapse of capitalism?