web3 architecture: communities vs companies
To simplify my understanding of web3, I focused on one key concept, that is replacement of companies by communities. And possible outcomes of the same.
The next question then is, how to use this assumption to make the difference between web2 and web3 more concrete and build a framework to understand web3 architecture.
One of the key aspects I focused on was what companies did and I looked at it from 2 perspectives i.e. value added by a company/product in each transaction and the role of a company as a broker between various entities making the transaction possible.
Interestingly, when I tried to study the web3 architecture I found a strong parallel in form of 2 key layers i.e. protocol and product.
Protocol layer replaces the role of a company as a broker between various entities by that of a community with inherent incentives for all entities.
For example, a company would hire developers to develop products and features, rent some infra from a 3rd party service provider, raise funds from investors to pay for all of this, acquire users and make decisions around how to use all the resultant resources.
In case of a web3 ecosystem, all of this will be managed by a blockchain governed by certain protocols and backed by native tokens which can be used as a currency by the resultant community. The inherent incentives built within the protocol attracts service providers who commit their infra and resources, the possibility of inflation of value created attracts investors, the resultant value created by the protocol attracts developers and early users. As the usage grows, it leads to larger payouts to service providers and developers resulting in a vibrant community which can take control of the ecosystem from initial founders and investors.
In traditional business models, initially the company would bear the cost of developers and service providers with the hope of recovering it multiple times at scale. When the switch happens, greed takes over and user experience starts degrading.
Due to inherent nature of web3 where such incentives are in-built in the protocols, the costs can be covered from day 0 and result in a scalable solution.
In web3 framework, the product layer consists of smart contracts. Traditionally, the company acts as a mediator between two or more parties in each transaction. Often controlling the terms of the transaction. In case of smart contracts, the transactions are executed automatically based on the terms of contract without the need of an intermediary.
The biggest challenge the companies face at this stage is to appropriately recover the cost of doing business at each transaction or over a set of transactions. The beauty of web3 is that any payment involved can be built in the smart contract and will be auto-deducted accordingly. This can lead to removal of many flaws of traditional business models like obnoxious ads, subscriptions, absurd commission fee etc. Removal of companies as intermediaries will allow removal of censorship, better control over who gets to see what.
So yes, at an architecture level, web3 can change a lot in terms of what is possible. But how we use that architecture and what we build using it is still upto us.