The most common challenges I see from companies navigating Web3
For the past 6 months I’ve been doing some advising / consulting for companies and VCs, big and small, that are exploring opportunities in crypto and Web3. Interest in Web3, crypto, and blockchain has exploded in the past year, with big headlines and massive investments in the sector. I’ve been consulting for large public companies, early stage startups pivoting to Web3, entrepreneurs looking to enter the space, and traditional tech VCs that have ignored the space thus far.
Here are the most common themes and questions I’ve come across in my consulting work.
People find it hard to start learning about Web3/Crypto
Everyone has a different baseline understanding of crypto and Web3. There are several reasons for that:
Underneath the hood, crypto/blockchain can be fairly complex. That complexity has made it hard to find an easy place to start learning. Most people don’t realize that you don’t need to be an expert in cryptography to build in the Web3 ecosystem. Over the past 10 years, we’ve seen growth in crypto infrastructure that enables you to build without having to be super technical.
It’s impossible to weed out the media hype from what is really being built. So much of the industry runs on hype that it is impossible for someone on the outside to instantly grasp what’s real and what’s not. (That’s partially why I created this newsletter.)
My suggestion is usually to spend meaningful time using the products and talking to the people building them in order to parse what is marketing and what are interesting fundamentals being developed. But it can be hard to even know where to start and who to trust. You can get there with enough time and effort, but you may have to sift through a lot of nonsense before you find the products and players that will be meaningful to you. There are too many different concepts to try and understand (e.g. NFTs, DAOs, crypto tokens, etc.).
There are so many different people working on different concepts within Web3 — but all of these concepts come from the core innovation of blockchain technologies and what advantages a decentralized, immutable system of records provides. Understanding the pros and cons of blockchain technologies can help you understand which applications make sense and which don’t.
A side note: The metaverse often gets lumped in with Web3. I do it, but many applications are not rooted in the concept.
People want to know the “rules” to Web3
The short answer is, there are none. “Web3” is a catchphrase, something that we’re all using to define a sector and phase of the internet. It’s like “Gen Z” or “social media.” These are just phrases people have made up to define a category. People act like Web3 is a religion that needs to be followed — it’s not. I once heard someone say, “If our customers aren’t self-custodying their assets, then we’re not doing it right.” Nope. Just like there’s no wrong way to dance, you can do whatever you want when it comes to so-called “Web3.” You can do Web2, Web 2.15, Web 2.63 — whatever you want.
I think there is a trend where companies want to appease the crypto crowd on Twitter and push for a fully decentralized world, even though the practicality of scalable solutions that are fully decentralized ignores the benefits of centralization. At best, companies are not looking at how difficult decentralized systems are to operate at scale. At worst, companies are riding the Web3 hype train by painting unrealistic visions of a fully decentralized future.
Finding the opportunity in Web3
When I work with larger companies trying to figure out their Web3 strategy, I find that meetings are often filled with discussions of the latest headlines. People are trying to catch the newest wave, but Web3 ideas and experiments are cycling at an incredibly fast pace (on monthly and quarterly cycles). Larger companies will never out-innovate startups and catch the short-term waves creating short-term value — but they do have an opportunity to build value as Web3 concepts create meaningful shifts in how we live digitally.
Instead of focusing on how clients can catch short-term waves or build their “Web3 strategy,” I usually suggest my favorite workshop exercise, which focuses on “why, then how.”
I start by having the core leadership team imagine how their industry/business would change if the following became true:
Customers/users want a more direct relationship with companies/brands and with each other
Customers/users want to participate in the ownership and direction of the products they consume
Customers/users demand ownership of their data and want more control over their privacy
Intermediaries are slowly removed from the value chain
Then I ask the team the following:
Paint a vision of what happens if these things come true. Who wins and loses in their industry?
Brainstorm what data points would indicate that these predictions are coming true
If the team assumes them to be true, how would they alter their company strategy or roadmap?
What solutions/technologies might help facilitate that change in strategy?
Note: This exercise doesn’t assume a solution without a problem (or potential problem). So many companies are forcing a blockchain-based concept into their business strategies where one should not exist. Unless companies feel a need to use blockchain as a marketing tool, the reality is that many are forcing it as a solution to a problem that doesn’t exist.
People underestimate how hard it is to custody digital assets
Custodying digital assets is harder than people think. It's easy to forget how much infrastructure and regulation has led to how traditional financial assets are stored. Sure, there are flaws in the system, but I generally feel comfortable that the cash I have in my Chase account is actually there. What’s so deceptive about digital asset management is that it looks deceptively similar to traditional asset custody, but everything is new. Key management, DRP, cyber and physical security, customer asset segregation, etc. have to be built in a completely new way.
When someone tells me they’re building a product that will incorporate centralized digital asset custody, in almost all cases I suggest that they talk to my old colleagues at Paxos or any other regulated custodian about managing the custody of assets. Companies like Paxos have spent many years perfecting digital asset custody with the highest level of safety and security and the appropriate regulatory framework. Unless it is a core part of your product offering, it’s not worth the investment in time (years) and money (millions) to perfect, maintain, and continue to develop.
When someone tells me their products rely on customer self-custody, I usually try to help them understand the reality of self-custodying digital assets and how hard that will be to scale. Ultimately, until there are tools that meaningfully help my mother to custody her own digital assets, the solutions won't scale. Someone is going to need to help her reset her password.
To use another analogy: If you’re building a web application, you wouldn’t focus on building web server infrastructure — you’d probably just use AWS.
For anyone who is just starting to wade into this world, rest assured that there are many others out there who have the same questions and challenges as you. There is a lot to learn and understand, but hopefully some of my insights will help point you in the right direction.
Hi, I’m Andrew Chang - I created the Web3 Roundup to share what I’m learning in this space. I’ve spent my career at the forefront of the technology industry in areas such as crypto/blockchain (Former COO @ Paxos, co-founding partner of Liberty City Ventures), video and adtech. I learn by meeting with founders, investors and other thought leaders and approach Web3 with the same enthusiasm – and skepticism – I had about crypto/blockchain technologies 10 years ago.
You can connect with me on LinkedIn or Twitter (@DigitalDrex)