3 Reasons Why Web3 Needs Protocols And Not Service Providers Service providers defeat the purpose of Web3. Anyone should be able to access vital Web3 utilities without costly barriers to entry.
By Kurt Ivy Edited by Joseph Shults
Opinions expressed by Entrepreneur contributors are their own.
A considerable amount of hype has developed surrounding what is known as "Web3." Web3 is essentially based on distributed ledger technology and many companies are using Web3 as an umbrella term to describe alternative utilities and marketplaces built on an underlying blockchain.
There are many benefits to decentralized protocols, but there's just one problem. These protocols are not going to set themselves up, and there is little incentive for new entrepreneurs to set up a business that will inevitably be taken out of their hands one day. As a service provider, you rake in the profits in perpetuity. In a decentralized network, the rewards are distributed. Even so, these permissionless protocols will become the foundation for Web3, and the profits from a token launch can be extremely convincing. In a world that is changing faster and faster, it may not be such a bad idea to create something great and then move on to the next thing. We don't always have to hold onto our babies forever.
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The following are three reasons why Web3 requires protocols instead of service providers.
1. Centralization needs to be avoided
This one is fairly obvious. The backbone of Web3 is decentralized protocols that can be used by all parties, instead of centralized service providers that get to pick and choose who they deal with. In Web2, sites like Facebook, Google, Twitter, UpWork, LinkedIn and monopolize large portions of the market and force their users to toe the line. In most cases, this isn't always a huge problem. But with this power, they set their own terms and ignore any call for change that threatens their comfort or their wallets.
They were revolutionary innovations and undoubtedly served to increase the quality of life for users around the globe. At the same time, they are known for rampant data harvesting and can influence events like elections. The power they have to skew public opinion is chilling, especially Google and its YouTube subsidiary.
There's no reason to suggest that it will be any different if we have a centralized company marketing itself as Web3. A prime example here would be Facebook, now known as "Meta." The idea of the world's largest social media platform launching its own Libra cryptocurrency and monopolizing the virtual reality environment is not exactly heartwarming. It is Web3 in name but not in essence.
Upwork, meanwhile, has suspended freelancers in Russia and Belarus from working to assist Ukraine. It might be safe to say that this is ultimately for the best, but because of the nature of the platform, it's also possible that only innocent, struggling freelancers were affected. It's not up to individual companies to make these kinds of decisions. Moreover, Upwork does not offer cryptocurrency payments, and the gig industry as a whole is set for disruption to give freelancers a voice. The H3RO3S project has already taken aim at this industry.
2. Digital sovereignty needs to be maintained
Data is the new currency. Actually, data always was the real currency, but most were unaware of how their data was tracked, monitored and sold to third parties. Part of the reason for the proliferation of blockchains was the rampant hacks and scandals.
Related: The Tech Giants Get Rich Using Your Data. What Do You Get in Return?
Centralized databases (including major credit agencies like Experian and government websites) were hacked and sensitive information was leaked. At other times, enterprises such as Facebook sold user data to political parties like Cambridge Analytica for processing.
Web3 is built on having a secure digital identity to verify your transactions. You don't want your digital identity tied into a corporate database -- this is the identity you will use to purchase houses and property and to access your multiple VR Metaverse accounts. You certainly don't want this information leaked because a corporation forgot to patch a security vulnerability. It will be tied to everything.
The bottom line is that your core digital identity in a Web3 environment cannot be stored in a centralized database (unless we get to a point where it is combined with a retina or fingerprint scan). Even with 2FA, the information is too sensitive for centralized storage. This has been proven time and time again with all of the scandals.
3. Protocols are cheaper
Service providers exist to make a profit. Protocols are public utilities that people can use to supplement their own abilities. If you can use the underlying protocol without using a service provider, then you are bound to save money. SHOPX will allow brands to plug their inventories into the blockchain and create brand-NFTs in order to access Web3 e-commerce. Amazon charges over 25% commission, but blockchain protocols like this will cost next to nothing.
Another would be banks and their SWIFT messaging protocol. Access to this international bank transfer would be easy and cheap without having to use a bank, the service provider. There are also online service providers who can do this function, but it is still expensive and you are required to give up your sensitive information to use this protocol.
Through the use of blockchains, you can send an equivalent amount of currency (as cryptocurrency) anywhere in the world, for a tiny cost. This is the most direct and obvious use case -- it's extremely fast, extremely cheap, private and secure. And you don't have to upload sensitive details.
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The necessity of distributed service providers
While centralized service providers are being rendered obsolete, we still need distributed service providers to offer a suite of protocols. Service providers will simply take a different role in facilitating transactions over specific protocols. They will be a necessary interface to enable Web3 residents to familiarize themselves with certain protocols. A better name would perhaps be protocol providers as opposed to service providers.
We also need Web3 providers to maintain servers (which people don't want to do, despite all the rhetoric) and for their efficiency. Decentralized protocols are very difficult to change, and run more slowly than centralized service providers. WhatsApp went from unencrypted to E2EE in a single year. Yet it is now owned by Meta, a major Web2 platform.
So it's a tradeoff. But even though centralized platforms are quicker and more convenient in certain regards, the cost is too much and we need to become more digitally sovereign through protocols.
But there are options that allow the best of both worlds. Ankr is a decentralized Web3 infrastructure that makes it easy to integrate DeFi on your dapp, earn yield and of course, access a decentralized, multi-chain blockchain infrastructure. The simple tools make it easy for anyone to participate. Anyone looking into getting deeper into blockchain tech will have the ability to deploy staking nodes as well as developer nodes in minutes. Over 50 protocols have been integrated into the ecosystem, including Binance and Polygon, with more features added regularly for a fully democratized protocol. Instead of becoming a node provider for a specific blockchain, you simply add your node to the protocol along with other node providers, creating a highly decentralized pool of nodes that blockchains can access as a whole.
Although Ankr realizes its position as technically a service provider now, the Ankr DAO is on the roadmap to change that. Until then, they are offering new projects an extremely low year's subscription for another month.
Old versus new service providers
Historically, each user would be assigned a username/account number for identification. All their activities on a given platform could be tracked and cross-referenced against their information and their subscription package. This is not the case with distributed providers. You are merely handed a set of tools/protocols to work with, along with help documents and some support features.
A major benefit of distributed providers is that there is no user identifier and no central database to store them in. For instance, when you create a Web3 wallet with Metamask, you merely get a tool that facilitates token storage and decentralized exchange purchases. The support team is available on Reddit (kind of, they are typically overwhelmed) but you don't really have an "account" to access. Your information can't be hacked because nobody owns it.
The downside is that if you lose your wallet keys, you lose your wallet, but that's Web3 — you can't have sovereignty without risk, a fact modern citizens will have to come to terms with.
