I almost titled this essay, "Why I'm Excited About web3" but I didn't want to oversell my position. So, I'm sticking with the more moderate title "Why I'm Interested in web3."
I can't honestly say I'm excited. But that's not because of any specific reasons. It's more because of my ignorance. Many people who built the internet as it is today are excited about web3 tech, and so I'm trusting that they see solutions to problems I'm unaware of.
But I am most definitely interested. And my interest stems not from the technology, but from the economics. web3 looks like an unprecedented opportunity for economists to shape the next version of the internet.
What is web3?
As far as I can tell, web3 is a rebranding of crypto. The rebranding was necessary for two reasons. First, crypto has a lot of baggage, stirring up feelings of get-rich-quick investors and pump-and-dump coins. Second, crypto gets people thinking too narrowly. web3 advocates want you to know that the blockchain technology is not just about creating a digital currency. It could be the architecture for a new internet.
web3 so far encompasses the broad array of blockchain-based technologies. Yes, that includes cryptocurrencies, but it also includes NFTs, DAOs, and DeFi. And I'm certain that soon it will include other innovations.
One way to understand web3 is to focus on the 3. web1 was the first version of the internet, a series of static pages from creators that users could read. Then came web2. My first memory of the term was a magazine article describing digg, a precursor to reddit. This website, along with this wild new project called Facebook, didn't just let you read pages, users could write on them. Pages were dynamic.
So web1 was read, and web2 was read and write. The promise of web3 is read/write/own. When you write to web2, that data is no longer yours. If you develop a following, it could disappear when the platform decides it no longer wants to host your work. web3 structures the internet to give users control of their data and creations.
What are the applications of web3? People suggest their own lists. Maybe some of those will come true. But like web2, I imagine most of the applications are ideas we haven't even thought of yet. When Facebook emerged as a service to connect with friends, maybe someone could have predicted that it would eventually host a large marketplace. But would they have predicted its use as a tool to organize protests? Or as a gateway to the metaverse?
The Economics of web3
Like web2, web3 looks like it has incredible promise for economists. But unlike web2, web3 looks like it could be more fulfilling and wide-reaching through the profession.
Economists fundamentally shifted web2. The big question at the beginning of web2 was, "how are these services going to make money?" The answer was selling advertisements. Economists played a big role in organizing early auctions for advertising space. Then economists made those ads more efficient by using the platform's data to target them.
The work was fun, but its meaning was void. Some of the profession's greatest minds were focused on how to get people to click on an ad.
web3 is starting from the economic fundamentals. Because of that base, there are so many more interesting questions.
Last week I was talking with some friends who are designing a web3 app with its own token. Our conversation ranged from monetary policy to market design to property rights assignment. It felt like the conversations I imagined when I first decided to study economics.
Instead of selling ads, economists working in web3 will be designing micro-economies with their own set of economic policy. You can experiment with monetary policy regimes. Or you can see how property rights affect investment. There just seems to be a lot of opportunity.
The Challenge
The biggest worry I have is that not enough web3 companies are interested in economists. Occasionally I will browse web3 companies to see who they are hiring. They always need software engineers. Sometimes they want a data analyst. But rarely are they looking specifically for an economist.
And that's a shame because web3 will live or die by the economic systems it creates. Many early iterations are going to fizzle because they failed to consider the incentives they established. An economist can provide the perspective and context that will save so many headaches.
What do you think it will take to get web3 companies to see the need for economists?
I also find the economics within web3 completely fascinating, especially as it relates to incentives. Everyone involved in web3 projects - devs, users, funders, etc. - need incentives to be aligned, and this is where long term success comes from, thus the need for excellent economists.
Ultimately though, I think it will take plenty of failed web3 projects due to poor economics for people to realize the importance of the underlying economics. I think it will be a gradual transition, in which the smart DAOs and projects rely more and more on good economists, and those projects slower to learn this will simply fail.
At the end they will consider an economist, because our work is almost the same as the one of data analyst. Joshua Angrist said economics was the first data science before data science exists.
The need for an economist for those companies will be to structure incentives, seeing implicit costs in order to increase their profit by allocating their resources in the right places, and that's what economist do.
They need define property rights, auctions and see whether it's worthy to enter into those new lands of web3. They will look for Economist eventually; in a new world, economics has a larger scope than anything else.