Tim O'Reilly recently published Why it’s too early to get excited about Web3, an excellent discussion on industrial transformation and the role that bubbles play. He used this historical lens to look at Web3 and where we might be with all of it.

One of Tim's points is that we fluctuate between decentralized and centralized models, using Clayton Christensen's law of conservation of attractive profits to show why this happens. He says:

I love the idealism of the Web3 vision, but we’ve been there before. During my career, we have gone through several cycles of decentralization and recentralization. The personal computer decentralized computing by providing a commodity PC architecture that anyone could build and that no one controlled. But Microsoft figured out how to recentralize the industry around a proprietary operating system. Open source software, the internet, and the World Wide Web broke the stranglehold of proprietary software with free software and open protocols, but within a few decades, Google, Amazon, and others had built huge new monopolies founded on big data.

Tim's broader point is that while there's a lot of promise, the applications that deliver a decentralized experience for most people just aren't there yet. Enthusiasts like to focus on decentralized finance or "DeFi" but I (and I think Tim) don't think that's enough. While centralized payments are a big part of the problem, I don't think it's the most fundamental. The most fundamental problem is that people have no place to stand in the modern web. They are not digitally embodied.

In Why Web3?, Fred Wilson, who has as deep an understanding of how the underlying technology works as anyone, explains it like this:

It all comes down to the database that sits behind an application. If that database is controlled by a single entity (think company, think big tech), then enormous market power accrues to the owner/administrator of that database.

This is why I think identity is the most fundamental building block for Web3 and one that's not being talked about enough yet. Identity is the ability to recognize, remember, and react to people, organizations, systems, and things. In the current web, companies employ many ponderous technological systems to perform those functions. I don't just mean their authentication and authorization systems, the things we normally associate with identity, but everything they use to create a relationship with their customers, partners, and employees—think of the CRM system, as just one example.

In these systems, we are like ghosts in the machines. We have "accounts" in companies' systems, but no good way to recognize, remember, and react to them or anyone else. Self-sovereign identity (SSI) gives people the software and systems to do that. Once we can recognize, remember, and react to others online (with software we control, not just through the fragmented interfaces of our mobile devices) we become digitally embodied, able to take action on our own.

With SSI, Fred's application databases are decentralized. That's not to say that companies won't continue to have systems for keeping track of who they interact with. But we'll finally have systems to keep track of them as well. More importantly, we get ways to interact with each other without having to be in their systems. That's the most important thing of all.

I've no doubt that there will be adjacent areas with attractive profits that lead to other forms of centralization, as Tim suggests. But, SSI, DeFi, and other Web3 technologies change the structure of online interaction in ways that will be difficult to undo. SSI, more specifically DIDComm, creates a secure, identity-enabled, privacy-respecting messaging overlay on top of the internet. This changes the game in important ways that level the playing field and creates a new layer where applications can be built that naturally respect human dignity and autonomy.

That doesn't mean that non-interoperable and non-substitutable applications won't emerge. After all, Google, Facebook, Apple, Amazon, and others became dominant through network effects and there's nothing about Web3 that reduces those. The only thing that does is continued work on standards and interoperability along with our insistence on digital rights for people. We're all a part of that effort. As I tell my students: Build the world you want to live in.

Photo Credit: Kuniyoshi Utagawa, The ghost of Taira Tomomori, Daimotsu bay from Kuniyoshi Utagawa (CC0)