Legitimacy of Web3
To say it’s been a crazy week in crypto would be an understatement… even by Web3’s standards. Over the past week, one of the largest crypto exchanges collapsed. A lot of people have covered this topic and the developments are still ongoing.
The events of this past week have forced many of us in Web3 to reflect deeply on the industry and ask some fundamental questions.
Today we are going to explore the concept of Legitimacy as a way to pull back and think more broadly about Web3.
This is a BIG topic. For today, we are just going to scratch the surface and tee up future essays on this important topic.
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Legitimacy is a hard concept to pinpoint because it’s not rooted in absolutes and is not deterministic (like the sciences).
Rather, legitimacy is a social construct — what makes anything legitimate is a function of what the people and participants of that thing believe to be true.
Vitalik Buterin defined legitimacy as the following [See his essay on Legitimacy]:
“Legitimacy is a pattern of higher-order acceptance. An outcome in some social context is legitimate if the people in that social context broadly accept and play their part in enacting that outcome, and each individual person does so because they expect everyone else to do the same.”
Basically, something is legitimate if enough of us believe it’s valid.
There are some key building blocks that enable legitimacy for a system:
Fairness: Do I believe the system is fair / credibly neutral, even if I don’t get my intended outcome? (i.e. game is not rigged)
Participation: Do I have the ability to influence the system? (i.e. one can freely participate with minimal constraints)
Transparency: Is how the system works (process, information, rules of engagement) accessible to all the participants?
Note: In Vitalik’s essay, he mentioned more building blocks for legitimacy. The few building blocks above is most important for nascent (innovative) industries. As the industry matures, you can reason that legitimacy is a function of standing the test of time… e.g. if it was legitimate yesterday, then it is also legitimate today.
Crypto’s Legitimacy Problem
We wrote about Web3 as a movement and the movement behind Web3 is being challenged.
If you spoke to the average person, especially skeptics, their reasoning is that the industry is full of scams, vaporware and false promises. Not only is the UI/UX worse, but the benefits and use cases are unclear. The events of 2022 have only exacerbated this problem.
Skeptics believe crypto is rigged (i.e. the system is not fair), is unusable for most people (i.e. participation rates are terrible) and is not open and transparent (i.e. it’s all behind the scenes in a bad way).
The skeptics have a point.
Crypto has a huge PR problem. PR problems are rooted in narratives.
For example, the story of Web3 in 2022 is quickly becoming a story about how financial institutions that touched DeFi collapsed and caused contagion and harm throughout the markets and society. This gets extrapolated as “everything about Web3 is bad…”
Of course, many of these institutions were centralized DeFi institutions, which meant they were traditional companies and structures that happened to touch crypto in their normal course of business.
The irony is that this narrative underscores the need for crypto, blockchain and Web3 – not just the technology, but the ideals. For example, transparency and governance (both core values of Web3) in these systems could have been the check and balance that prevented their failures.
Legitimacy is a Weighing Machine
Amongst all the craze, it feels like the narrative of Web3… the “Why” behind Web3, has taken a back seat. But the narrative (ideals, values, vision) of Web3 matters more than ever.
Since legitimacy is a social construct, for anything to be considered legitimate, we need others to also consider it legitimate. Said another way, if I consider something legitimate, but others do not… then it’s not legitimate.
For new industries, technologies, and any new systems, legitimacy is a constant weighing machine – the legitimacy of the system leans one way or the other until enough people see it for what it is, stop questioning it and take it as fact.
In a roundabout way, this all comes back to onboarding and adoption.
For Web3 to be considered legitimate, the industry needs (a lot) more people to believe the system, industry, technology, and everything in between is legitimate. Web3 needs more people to participate in the industry.
But the only way Web3 gains its legitimacy is onboarding people into a system that is fair, enables participation from the masses and is transparent enough to prevent unchecked power and centralization risk.
The only way to enable this is if the existing industry participants push for these ideals.
Why should the existing industry participants care?
Because the potential of Web3 is much greater than what it can be today. In the grander scheme of things, we are fighting over a smaller pie versus creating and sharing a bigger pie. 🍰🥧
The Implicit Coordination Game
Many in Web3 focus on the technology side to the industry – how do we make blockchains work? How do we make them faster? How do we evolve token standards, etc.?
But the people side of the equation is equally as important and often under-explored (especially in the early days).
Web3’s social construct is made up of human beliefs that catalyze action. The values of fairness, participation and transparency are some of the core values of Web3. It’s why a lot of smart people have decided to leave their status quo and jump into Web3.
If those values go away, Web3 is dead on arrival.
Legitimacy is an implicit coordination game where the outcome is decided by its participants.
And everyone is playing this coordination game.
Where Web3 goes from here is a watershed moment for its legitimacy.
The optimist in us believes that we can all influence and shape what Web3 becomes.
But can and will are two different things.
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