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Cons of Web3

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Cons of Web3

Cons of Web3

Let’s dispel the hype and illusions around Web3, DAO, DeFi, and cryptocurrencies in the world. Let’s face it, Web3 is already suffering from technology issues, user difficulties, and high entry costs. With all the publicity and hype surrounding cryptocurrencies, blockchain, DeFi, and Web3 applications, many experts are surprised by the difficulty of accessing these technologies and applications. With today’s multi-step, complex workflows and poor user experience, many cryptocurrencies, DeFi, and Web3 applications may not see much adoption outside of what is already a cryptocurrency.

For example, getting a crypto wallet is the first step that needs to be taken before accessing Web3, even this process can be difficult, especially for older Internet users, even for those who know how to use Web2 applications.

The main disadvantages of Web3 or why the technology is not accepted by the world community:

Complexity and high entry costs for users are the main disadvantages of Web3 development

Even describing how many dApps and DeFi applications work can be confusing for those who are not immersed in the world of cryptocurrencies. For example, it can be difficult for new users to understand the concept of fully secured loans on platforms such as AAVE, as most consumer loans (excluding home and auto loans) are unsecured.

Other financial activities, such as regular staking on PoS networks and staking liquidity pool (LP) tokens on exchanges for yield, can also be incomprehensible to non-cryptocurrency users and are often poorly explained by the platforms themselves.

In addition to the difficulty of interacting with dApps for non-cryptocurrency users, transactions, especially on the main Ethereum network (Layer-1), can be incredibly expensive, often ranging from $35 to $100, and sometimes reaching much higher amounts. This means that those wishing to invest small amounts of money in DeFi protocols or simply hold their own assets will pay a significant portion of their investment in the form of gas fees.

For example, if a new user wants to send $350 of cryptocurrencies from their Coinbase account to their wallet without guardianship, they will most likely have to pay a fee of $35-$55, which is 10-15%+ of the total transfer amount.

Despite the idea that crypto transactions lower fees, these incredibly high fees eclipse just about anything found in the world of traditional finance.

While Layer-2 attempted to address the cost and speed issues of the Ethereum network, the need to transfer assets to the Layer-2 blockchain is time-consuming and costly, making this option unlikely for those new to cryptocurrencies and those with little patience to troubleshoot issues in a somewhat complex process.

Another major example of poor user experience and technological problems in the blockchain industry is the massive problems associated with crypto games such as Axie Infinity, Decentraland, and The Sandbox. Many of them require powerful computers with a lot of memory, they have serious problems with logins and passwords, poor customer service, very simple graphics, and low speed, all which leads to frequent errors and freezes.

This doesn’t even touch on the incredibly high cost of entry – given that basic NFTs at Decentraland and The Sandbox typically cost at least $5,000, this means that they are only available to rich people or those who are willing to take very high risks. As with regular DeFi, this means that these blockchain games will most likely only be available to “power users” of DeFi and cryptocurrencies at the moment and may not be accepted by the general public, at least until then. until (and if) they are radically improved.

While many of these issues are specific to crypto games, they also represent larger logistical challenges associated with blockchain. Blockchain technology is currently not very good at storing large amounts of information, executing a large number of transactions, or supporting the advanced graphics needed to create a high-quality gaming experience.

This will become a major challenge when trying to combine VR/AR experiences with blockchain technology, and while Layer-2 supporting off-chain computing and faster blockchains like Solana may outperform Ethereum, they simply may not be enough to support the metaverse that humans start to expect in the near future.

The VR/AR aspects of the metaverse also pose a new challenge with VR/AR hardware such as headsets, glasses, or new game consoles that can be prohibitively expensive for many people. Assuming and dreaming that the metaverse boom becomes a reality, and people increasingly participate in the social and professional environments of the metaverse, the high cost of admission for this type of equipment may lead to a new social bifurcation into “haves” and “have-nots”.

This means that Web3, instead of promoting greater social and economic integration of people, will actually lead to even more inequality in the world.

In essence, those who can afford VR/AR or neuro-linguistic devices will have many new social and economic opportunities, while those who cannot afford them will be left behind.

Illusion or “market bubble” of decentralization of cryptocurrencies and blockchain

The supposed cornerstone of Web3 is the creation of a decentralized internet that cannot be controlled or controlled by one or more centralized entities. However, many fear that Web3 will have only the appearance of decentralization, and instead become the property of venture capital firms or hedge funds (and this is already happening) that own a large number of tokens in the blockchain on which Web3 is based.

In fact, the declared decentralization is just an illusion, a crude technology and a marketing ploy in a new business under the Web3 hype.

In addition, such funds, super rich people, or companies can become new “crypto whales”, managing hundreds or thousands of nodes and reducing or eliminating the resistance of the blockchain to Sybil – its ability to withstand a 51% attack. The trend is already observed, because “he who has a lot of money orders the music …”

Web3, DAO, and cryptocurrencies are more centralized than decentralized

Research and experts say that Web3 is already incredibly centralized, perhaps even more so than Web2. For example, according to a WSJournal study from December 2021, data shows that just 0.01% of bitcoin holders control 27% of the currency in global circulation. This means that despite its scarcity and lack of a central “Bitcoin bank”, Bitcoin ownership is actually much more centralized than fiat currency ownership like the dollar or euro.

Bitcoin is unfortunately one of the major blockchains suffering from a high level of centralization despite marketing claims to the contrary.

Even Ethereum, which is often praised for its decentralization, can still suffer from the collusion of node operators, and the high cost of running a node makes it out of reach for all but the richest people. Alternative (non-Ethereum) L1s such as Algorand often suffer from even more centralization due to low node limits, which also leads to the threat of plutocracy and node collusion.

Also, DAOs that are making incredible progress in disrupting the legacy enterprise model are often much more centralized than they seem. Lack of grassroots participation in the DAO can result in many members not being able to vote on decisions, or even lacking true, reasonably differentiated options when deciding which course of action to take.

Of course, DAOs, like blockchains themselves, also suffer from the fact that the largest token holders can vote as they please on proposals, which could mean that many DAOs will suffer from the same shareholder profit orientation problems as traditional corporations.

Web3, the Metaverse, and AR/VR can be detrimental to people’s mental health

Scientists are still undecided – but most doctors, psychologists, and researchers seem to agree that social media, when overused, can be extremely harmful to our mental health. Likes and attention on social media release dopamine, which can easily turn a few minutes of social media interaction into a harmful hours-long obsession.

On the other hand, negative social media comments and social media bullying can lead to anxiety and depression, and in some cases, social media bullying leads to self-harm or even suicide. Social media often leads to unhealthy comparisons between the user and other people, leading to feelings of inadequacy, low self-esteem, negative body image, economic and social envy, and increased loneliness.

However, social networks affect us not only mentally, but also physically. One 2018 UK study found a strong correlation between social media use and significant sleep disturbance, which itself can lead to mental health problems, memory loss, immunodeficiency, cognitive decline and a range of other health problems.

Some doctors and scientists around the world consider social media to be one of the major health crises of our time.

These issues are especially concerning for young people, who use social media more often and may have a less certain self-image, but they can negatively affect people of all ages.

A metaverse with AR and VR is more dangerous for people than social networks

Unfortunately, the development of the metaverse with the help of AR and VR may be even worse than social networks for our mental health. The Metaverse, with its enlarged version of reality, could easily become even more addictive than social media, leading to even more unrealistic expectations of life and unhealthy comparisons with other users.

Some regular users of the metaverse may even begin to prefer the metaverse to the real world. This can lead to social withdrawal, financial problems, and even paranoid ideas.

On a physical level, a potential metaverse of addiction could also lead to obesity due to reduced physical mobility and severe vision problems due to over-use of VR/AR headsets and similar technologies.

Also, as the popularity of the Metaverse grows, some people may be forced to interact with the Metaverse (even if they are against it) as part of their social lives and careers, even if it causes them stress, disgust, or damage to their mental health.

Cryptocurrency, blockchain, and DeFi are already fueling crime and money laundering

Despite the potential benefits, cryptocurrencies, blockchain technology, and DeFi protocols provide criminals and governments with the opportunity to use these systems for personal gain. This includes use for traditional money laundering purposes, as well as hacks that exploit weaknesses in exchanges and DeFi protocols. According to blockchain data processing company Chainalysis, criminals worldwide laundered $8.6 billion in cryptocurrencies in 2021 alone, and this figure is expected to increase significantly in the coming years.

Countries today are already using cryptocurrencies for their own purposes, which are not always useful for the world. North Korea has been using cryptocurrency transactions for several years to fund various government operations, including its sanctioned new weapons program. However, North Korea is far from the only country using cryptocurrency to circumvent international sanctions and fund illegal activities.

As can be seen today, various criminal groups use bitcoin and other crypto assets to support the Nazi regime in Ukraine, support the supply of weapons and their uncontrolled sale around the world. In addition, scammers, using the hype around politics, create fraudulent crypto projects under the pretext of collecting cryptocurrency for charity, collecting millions and disappearing. In addition to governments, the Palestinian group Hamas began collecting bitcoin donations in 2020 using a site called cash4ps.

Even though blockchain-based transactions can indeed be traced and much of the information is publicly available, there are already technologies that can replace this information. Moreover, there are developments of an open and closed blockchain with managed smart contracts, as a result, “white transactions” will be shown to you in the public domain, and only what you need to see. It is likely that money laundering through cryptocurrencies will only increase in the near future, especially with the rise in the popularity of privacy-based cryptocurrencies such as ZCash.

Artificial intelligence in Web3 as a threat to the economy and civilization

Despite the potential for exponential efficiency gains, artificial intelligence (AI) can be economically dangerous due to the fact that it can make existing jobs obsolete, leading to mass unemployment. While new jobs such as AI programmers, new jobs in cryptocurrencies, blockchain, and the metaverse will certainly be created, there is a limit to how many people can consistently work in these emerging industries. It is quite possible that AI will be able to completely replace human workers, spending only a fraction of the resources on it.

Although there are still many years before the emergence of “thinking” or intelligent AI that could equal or surpass humans in terms of intelligence and thought processing, AI technology is developing very quickly. As often portrayed in science fiction, intelligent AI has the potential to turn against humans, or at least make life difficult for our civilization.

Unfortunately, Web3, blockchain, crypto, and the metaverse will make it even easier for malicious AI to wreak havoc on the global economy or society.

For example, AIs can masquerade as humans on the Internet, acquire or trade digital assets, or even operate nodes, essentially disrupting the blockchain. In addition, smart AIs can hack critical computing systems like stock exchanges, or even infrastructure like gas or electric lines.

Using cryptocurrency as payment, they can even hire human henchmen to do their dirty work. This power can only be strengthened by the integration of quantum computing and AI, which could make AI hundreds or thousands of times smarter than humans, at least in terms of intelligence.

While this question is purely theoretical at the moment, scientists and even tech entrepreneurs like Elon Musk are warning about the potential dangers of intelligent AI. In the worst-case scenario, as shown in the popular movie The Terminator, one or more AIs can even take control of military equipment such as missiles or nuclear weapons, causing mass chaos or even the complete destruction of our civilization.

Despite encryption, Web3 does not guarantee high privacy for users

Despite the potential for increased levels of privacy, blockchain can be the opposite nightmare for users. Public blockchains record every transaction. This means that while wallet owners cannot be directly identified by their public keys, cybersecurity professionals working for governments can often easily trace the wallet owner. This allows governments to obtain a user’s financial information without the need for a warrant or any kind of injunction.

Also, while blockchain-based social media can give users more control over their information, immutable blockchain technology poses certain challenges. For example, a blockchain-based social media platform can make it extremely difficult for users to remove potentially inconvenient information from their past.

Many commentators believe that the “right to be removed” is as important to internet ethics as free speech. For example, social media users should not be constantly haunted by silly posts or comments made when they were younger that could negatively impact both their social life and career prospects.

The Threat of Central Banks CBDCs and Social Credit Ratings

Traditional cryptocurrencies such as Bitcoin and ETH have offered users and investors the opportunity to use a more decentralized and potentially deflationary type of money. Other cryptocurrencies such as ZCash have placed emphasis on user privacy. However, central banks, traditionally the only institutions that can issue money, do not want to be left out of the Web3, blockchain, and crypto revolution.

This fear of being left behind is at the heart of these banks actively promoting blockchain-based central bank digital currencies (CBDCs). Unlike traditional cryptocurrencies, CBDCs will be completely centralized and will experience the same inflationary pressures as the fiat currencies they represent, giving them little advantage over traditional cryptocurrencies.

Countries representing over 90% of the world’s GDP have programs to study CBDCs, and CBDCS is already operating in seven countries, including Nigeria and the Bahamas. Another 16 countries have pilot CBDC programs including Sweden, China, South Korea, Ukraine, Singapore and Saudi Arabia.

While marketers claim and tout CBDCs to help users, central banks have a lot of potential to harm them.

Moreover, expert research argues that CBDCs are a potential nightmare for users, as governments will be able to directly track every transaction an individual makes and block it at any time, without the need for a warrant, court order, or any type of cybersecurity investigation.

For example, the Chinese digital yuan allows the Chinese government to see every transaction a person makes in real-time. This level of control makes it incredibly easy for the government to freeze people’s digital wallets, “delete” their money, limit their spending, or prevent them from spending money on certain goods.

CBDCs can also be linked to blockchain-based “social credit scores” that have also been rolled out in China. They typically take into account information such as a person’s legal record, career history, political affiliations, and even social media presence.

For example, people with a “good” or “excellent” social score gain access to better public services, better healthcare, jobs, and greater access to credit, banking, and investment, while people with a “mediocre” or “poor” social score social ranking may find themselves denied access to basic services such as public transport, public hospitals, and high-quality schools, and may even be prohibited from opening a bank account.

While it seems inevitable that CDBC central banks will be implemented in most countries in the near future, it is unclear how they can overcome the privacy concerns inherent in issuing a currency backed by a government-run blockchain.

The only way to create a truly private CBDC is to decentralize it so that the central bank has little or no control over the issuance of the currency, which makes it completely meaningless. At the moment, CBDCs are an incredible threat to the privacy of people around the world, with little to no benefits for users.

Instability, insecurity, and lack of real advantages of cryptocurrencies

Despite the potential to create new industries around Web3, employ millions of people, and change our financial system for the better, the blockchain-based cryptocurrencies that underpin the nascent Web3 ecosystem are not all rosy and sunny.

Although the volume of the cryptocurrency market is huge, like any other asset class, volatile fear can lead to a major crash and severe economic shocks to the economy as a whole. Especially given the fact that cryptocurrencies are much more volatile than traditional asset classes such as stocks, bonds, and real estate.

Over the past 12 months, the total market volume of all cryptocurrencies has experienced two major “collapses”: a $400 billion crash in December 2021 and a $1 trillion crash in May 2022, which is significantly larger than similar losses in the stock markets.

In addition to general volatility, the emergence of stablecoins, which already have a market of $180 billion, creates an additional “market bubble” and potential systemic risk. This is especially the case for uncollateralized algorithmic stablecoins such as TerraUSD (UST), which have raised concerns among regulators that a “flight” of these coins could seriously affect the price and stability of the US dollar itself.

For example, in early May 2022, UST pegged off the US dollar, falling to $0.30, forcing the Luna Foundation Guard (LFG), the organization behind UST, to liquidate hundreds of millions of dollars of bitcoin in an attempt to maintain the peg. It also resulted in billions of dollars flowing out of the DeFi Anchor lending protocol, where investors bet on UST at up to 20% per annum, which were partially subsidized by LFG to boost market demand for UST. Overall, the collapse of the UST and Luna ecosystem resulted in more than $50 billion in losses for investors.

In addition, there is always the possibility that major cryptocurrencies like Bitcoin or ETH could suffer a major hack, stealing billions of investor funds – especially with the advent of new technologies like quantum computing that can break seemingly ironclad security guarantees cryptographically. secure proof-of-work or proof-of-stake consensus mechanisms.

Lack of potential benefits for the world from cryptocurrencies and DeFi

Apart from volatility and security issues, cryptocurrencies and DeFi have yet to solve many of the problems of our current financial system. While it has made some people rich, it has not begun to offer basic services such as credit cards, student loans, or debt consolidation, etc. Despite some progress in crypto mortgages, these types of loans tend to be offered by centralized institutions to wealthy individuals, which contributes little to financial inclusion for ordinary people.

There is also the fear that assets like bitcoin are incredibly unproductive, in addition to harming the environment and putting a strain on the environment and our energy infrastructure. Investment legend Warren Buffett has been one of the main critics of bitcoin and cryptocurrencies.

Warren Buffett believes that the cryptocurrency does not produce any useful goods for the world and society, and stated that he “would not take all the bitcoin in the world for $25.”

While blockchains like Ethereum may have more value, there are still plenty of crypto assets, including meme coins like Dogecoin and Shiba Inu, that are unstable and have little to offer the world in terms of real economic performance. It can be argued that an equal investment in stocks or bonds at least stimulates economic growth by providing companies with more capital to potentially hire workers.

Additionally, the emergence of the metaverse could lead to more money being spent on unproductive, risky assets like virtual earth. For example, by spending $1 million to buy or build an apartment building, an investor provides much-needed housing, increasing the overall housing supply and potentially stabilizing, if not lowering, housing prices. In contrast, the same $1 million spent on a mansion in Decentraland does little to nothing to the outside world.

Fraud and hacking of cryptocurrencies, NFTs and DeFi nullifies their advantages

In addition to the unclear macroeconomic benefits of cryptocurrencies, the volatility of crypto assets and the widespread use of “pump and dump” or “carpet rip” schemes are other legitimate criticism of the growing crypto economy. Tempted by the opportunity to get rich quickly, thousands, if not millions, of people have suffered significant losses by investing in small-cap crypto assets that were touted by bloggers and other influencers and failed to live up to their potential.

Even worse, many have fallen victim to outright scams, such as the infamous Safemoon cryptocurrency scam aimed at stealing investor funds. Regulation can solve some of these problems, but it can also disrupt the kinds of innovation that can really lead cryptocurrencies and DeFi to solve real problems.

However, traditional cryptocurrency scams are not the only problem that investors should beware of. Those using DeFi protocols such as DEXs and providing liquidity through staking and yield farming have also lost billions due to incidents such as “flash lending” attacks. This happens when a scammer takes out a large unsecured loan to buy assets on the DEX, temporarily boosting their value, and then sells them in the same trade, often resulting in hundreds of millions in losses for investors.

In addition to the widespread loss of DeFi and crypto investors and crypto scams, the world of virtual lands and other NFTs has also faced its share of controversy. NFTs, like cryptocurrencies, have also faced their fair share of carpet scams, such as the infamous Frosties NFT scam that resulted in at least $1.2 million being stolen from NFT collectors. A systemic issue is also “Wash trading”, where an NFT creator buys their own NFT and sells it back to themselves in order to create an artificially high floor price.

In addition to specific scams, many claim that the NFT market is artificially overheated, as evidenced by scenarios such as the Bored Ape Yacht Club-linked Apecoin cryptocurrency temporarily reaching a market value of $8 billion just a few weeks after launch. All of this means that, just like in the cryptocurrency market, if the NFT bubble bursts, it could lead to serious financial losses for many, including newcomers who have invested far more than they should have.

As a result, Web3 technology should be controlled by the global community

Web3 will depend not only on the professionals who create it – but also on all other users. Clearly, Web3 technology has the potential to be incredibly powerful—and, like an axe, it can be used for both good (like building a house) and bad (as a lethal weapon).

Ultimately, it is up to us – whether we are blockchain developers or ordinary users – whether we will use Web3 for good, or whether the technology will control us even more than Web2.

No matter how new technologies develop, it is everyone’s responsibility to advocate for the positive use of technological innovation. While this may be different depending on the individual and society, the true desire for more transparency, more decentralization, better social and political systems, and more privacy could lead us into a new golden age.

Otherwise, we could become Web3 slaves — obsessed with the metaverse and get-rich-quick schemes, and let governments and large corporations monitor every detail of our lives. After all, the development of Web3 does not depend on chance – it depends on all of us.

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