blockchain graphic

With all the talk about web3, people have been asking this question lately - and it's a good one:

What problem does Web3 solve, that isn't already being solved today, without the blockchain?

Here are a few examples, using a loose (but not dishonest) definition of web3.

Bottom line: web3/crypto allows you to do digitally fast entrepreneurial things with your assets. Ultimately it puts fewer conditions on you, which allows you to do more.

[I'm treating crypto as interchangeable with web3 because it's the same model: decentralization and decentralized ownership of the core pieces, based on blockchains (source: Wikipedia). The term was coined in 2014 by Ethereum co-founder Gavin Wood, and can be contrasted with centralized companies like PayPal and Visa.]

Solution #1: Be Your Own Bank

One criticism of web3 is that it isn't doing anything that isn't already being done better without a blockchain. If that's true, then we should be able to construct an equivalent solution that doesn't use a blockchain, for every blockchain solution.

So let's try that, for Bitcoin or Ethereum.

In the process, we'll see what they enable that wasn't being done before.

Crypto Advantages

Why is crypto a better solution? If we're trying to replace it, what advantages do we need to match?

First, we have to keep in mind that crypto payment solutions combine features of a payment system and a bank. They have functionality that a credit card doesn't.

Without Bitcoin or Ethereum, it's not possible to hold your own assets and also pay with them, with all the convenience and (the important part) speed of the digital.

Example: you can't pay with a credit card where the credit card is effectively unlimited in its purchasing power. It's hard to buy a house with a credit card.

Here's an example where moving large assets matters:

You want to be a market maker.

I wouldn't even know how to do this without crypto. You can go to Charles Schwab and put $1 million in a trading account, but I don't know how you can earn market making fees off of it. As far as I know, you can't. A fund might, or they might do something else, but you make 1-2%, through vague methods.

With crypto, on a decentralized finance platform like Curve Finance (web3 again), you are the market marker. You lend the assets, you run the risks, and you earn the reward.

This lets you rotate large amounts of assets very quickly among different income earning opportunities, which is impractical/weird to do with anything that isn't web3.

Imagine moving 100k+ daily between different ways to earn with a credit card. It's basically not done. PayPal would block you. A bank wouldn't like it.

People really do this with crypto, for defensible reasons, to turn a profit.

There are also advantages from the business owner's perspective. You don't have to treat them as paramount, but it's fair for business owners to want them and prioritize solutions that give them.

One crypto advantage from the business owner's perspective is: no chargebacks.

Of course, if you as a consumer don't like that, if your payment system must allow refunds: don't use it. But it's valid for business owners to want this, and valid for users who are okay with it to share in the rewards.

Other advantages are: they don't require a centralized authority making unilateral decisions; you have a high degree of assurance they won't ever go down, due to a hack or government action; they aren't directly hurt by government actions, like U.S. dollars are by inflation.

So, if we accept these as genuine advantages that blockchains create, let's try to create a non-blockchain alternative that's equally as good, that also has these features, or at least the most important ones.

Digital payments in a non-blockchain world

Our task here is to try to create a digital solution here that's as good as crypto - but without involving crypto, as though Bitcoin or Ethereum never happened.

First, we'd have to loop in a venture capitalist. It's hard to imagine getting off the ground without one.

Then, we'd need an experienced, credentialed entrepreneur. Probably someone with past successes under their belt, from the finance world.

We can imagine what their pitch would be, to venture capitalists and, eventually, to users:

E-cash is a centralized digital currency service that's also a global payment processor.

That sounds a lot like Liberty Reserve. It was pretty much this, before being shut down by the U.S. government.

And so... we'd never get this solution. The advantages described above would be classified as 'illegal' and never achieved.

We know this, because the one company that tried to do this, got shut down.

There's also a separate, important, consideration:

In a winner-take-all business world like the one we live in, we're stuck with 1 or 2 payment processors, meaning that, for monopoly reasons, if they don't want something to happen, it never will.

Imagine if we asked PayPal or Visa 'we like what you're doing but we'd prefer it if you didn't allow chargebacks in some cases, or police users, based on the size of transactions or type of business - could you stop?'

We don't have any leverage here. They can say 'no' and there's nothing we can do.

In fact, real business owners have asked that, and they've said no, and that's pretty much final. You can accept that and play by their rules or you can use cash: your only options.

So we can see there are payment systems with advantages that are neither 'credit card' or 'cash'. That's crypto, today.

Solution #2: Middleman-Free Profits

Say you want to serve people exchanging currencies in a pool: U.S. dollars and Euros, back and forth.

You want to be able to add your own dollars and euros, so you can profit when users switch them. But you also want a cut of the fees, as the reward for being this provider.

In a non-blockchain world, as far as I can tell, you pretty much can't. The companies on stock exchanges are all middlemen. By the time a company gets to the size that could do this, it doesn't allow you to take fees.

What you can do, very indirectly, is buy stock in a company that does this. But their management structure and opaqueness mean you'll earn less. You can't put a dollar in and get 5% back from the business, annually, directly, from fees alone, without overhead.

But why do you need that overhead? It's just some code, plus users submitting their capital, for trades or liquidity. If you want to create something bare bones, using pure software, without CEOs and expensive boards, it should be possible.

We also have the same 'winner-take-all' problem described above: the incumbents don't do this and you have no alternative to using them.

So basically, in the real world, this isn't an option.


Crypto makes new things possible - uniquely possible. It's creating opportunities that didn't exist before.

To recap, web3 makes it possible to combine a payment processor with a bank, and earn middleman-free income directly from an organization like an exchange (though this could be true for other organizations, like DAOs).

For both abstract and real world reasons, you can't get this without crypto.

Web3 (in a broad defintion) is doing this; that's the value it brings to the table. If you want these things today, you have to use web3, in the form of cryptocurrencies like Bitcoin & Ethereum, and associated web3 apps.

It's only fair to give credit where credit is due. Even if it's not for you, it's still doing good in the world, by any reasonable commercial defintion of the term.