Why is Web3 Failing?

The Reason behind the Failure of Web3 Platforms & Tokens

11 min readJun 19, 2024

Web3 technology holds great promise for the future of the internet. It aims to create a decentralized, user-controlled web that is more transparent and secure. However, despite its potential, Web3 faces many significant challenges.

These challenges hinder its progress and prevent widespread adoption. This blog explores the reasons behind the failure of Web3 platforms and tokens.

Web3 is supposed to be the next big thing, promising to give us a decentralized internet where users are in control. But when we look closer, it’s clear that Web3 is more of an illusion.

It’s impractical and full of scams, pulling our attention away from what matters: Bitcoin.

Web3’s Problems

Web3 is supposed to decentralize the internet, but it’s not working well. These platforms are slow and expensive. They can’t handle many transactions at once, making them impractical for daily use.

Using Web3 platforms is complicated. Setting up wallets, managing private keys, and understanding decentralized apps (dApps) is hard even for tech-savvy people.

For regular users, it’s almost impossible. Despite these issues, the hype around Web3 keeps growing, pushing a technology that doesn’t work well in real life.

ICO Scams

A big part of the Web3 hype is about Initial Coin Offerings (ICOs). ICOs raise a lot of money by promising new and exciting technology. But many of these ICOs are scams. They take advantage of people who don’t understand how risky they are.

These projects raise millions of dollars with just a whitepaper and big promises. Once they get the money, many don’t deliver anything. Investors end up with worthless tokens and broken promises.

This has happened many times, showing that ICOs are more about making money from hype than creating real products.

Bitcoin: The Real Revolution

While Web3 is full of empty promises, Bitcoin is the real deal. Bitcoin has proven itself over the years as a secure, decentralized digital currency. It’s simple and works well for real-world use, something Web3 hasn’t been able to achieve.

Bitcoin’s value is clear: a decentralized currency that lets people control their money without relying on banks or governments. This is true decentralization, not the complicated and impractical ideas pushed by Web3.

The Distraction

The hype around Web3 distracts us from Bitcoin, the proven technology. This distraction helps those who profit from ICO scams but hurts the goal of creating a truly decentralized financial system.

Web3’s promise of decentralized apps sounds good, but it’s not ready for mainstream use. The ICO funding model is full of scams. Meanwhile, Bitcoin continues to provide a reliable and decentralized alternative to traditional money.

Real — Life Examples / Case Studies of Web3 Failure

1. The DAO Hack (2016)

Description: The DAO (Decentralized Autonomous Organization) was one of the first major projects on the Ethereum blockchain, raising over $150 million in its token sale. However, a vulnerability in its smart contract code was exploited by hackers, resulting in a loss of approximately $50 million worth of Ether.
Impact: The incident led to a hard fork in the Ethereum blockchain to recover the stolen funds, creating Ethereum (ETH) and Ethereum Classic (ETC). This event highlighted the security vulnerabilities in smart contracts and the need for rigorous code auditing.

2. Parity Wallet Hack (2017)

Description: Parity, a popular Ethereum wallet provider, experienced a major security breach due to a flaw in its multi-signature wallet code. Hackers exploited this vulnerability, resulting in the loss of over $30 million worth of Ether.
Impact: This incident underscored the importance of secure coding practices and thorough security audits for smart contracts. It also raised concerns about the safety of funds in decentralized applications (dApps).

3. BitConnect Collapse (2018)

Description: BitConnect was a cryptocurrency investment platform that promised high returns through its lending program. In January 2018, BitConnect shut down its lending and exchange platform amid regulatory scrutiny and accusations of operating a Ponzi scheme.
Impact: Investors lost significant amounts of money, and the value of the BitConnect token plummeted. This case highlighted the risks associated with high-yield investment schemes in the crypto space and the need for regulatory oversight.

4. QuadrigaCX Scandal (2019)

Description: QuadrigaCX was a Canadian cryptocurrency exchange that went bankrupt after the reported death of its founder, Gerald Cotten, who allegedly took the private keys to the exchange’s wallets to his grave. Approximately $190 million worth of cryptocurrency was inaccessible to users.
Impact: The incident raised questions about the security and management practices of cryptocurrency exchanges. It also emphasized the importance of transparent and reliable custodial services for digital assets.

5. Yam Finance (2020)

Description: Yam Finance was a decentralized finance (DeFi) project that gained rapid popularity. However, shortly after its launch, a bug in its rebase function was discovered, leading to an over-issuance of tokens and a crash in its value.
Impact: The project’s failure highlighted the risks associated with DeFi projects, particularly those that undergo rapid development and deployment without thorough testing and auditing. It served as a cautionary tale for investors and developers in the DeFi space.

6. EOS Network

Description: EOS, a blockchain platform for decentralized applications, raised over $4 billion in its year-long ICO. Despite this massive fundraising, the network has faced criticism for centralization issues, governance problems, and a lack of widespread dApp adoption.
Lessons Learned: The EOS case study illustrates the challenges of achieving true decentralization and effective governance in blockchain networks. It also shows that raising significant funds does not guarantee project success without solving fundamental technical and organizational issues.

7. Tezos Initial Coin Offering (ICO)

Description: Tezos conducted one of the largest ICOs, raising $232 million in 2017. However, the project faced significant delays due to internal conflicts between the founders and the foundation, leading to legal battles and loss of investor confidence.
Lessons Learned: The Tezos case study highlights the importance of strong, cohesive leadership and clear governance structures in blockchain projects. It also underscores the need for managing investor expectations and maintaining transparent communication.

8. SushiSwap Migration

Description: SushiSwap, a decentralized exchange, experienced a rocky start when its anonymous founder, Chef Nomi, cashed out a significant portion of the project’s development fund, causing panic and a sharp decline in token value. The project was later taken over by community member 0xMaki, who helped restore its reputation and continue development.
Lessons Learned: This case study demonstrates the risks associated with anonymous project founders and the importance of community trust and involvement. It also shows how a project can recover from initial setbacks through strong community leadership and transparent practices.

Reasons for Web3 Failure

Scalability Issues

Scalability is a major problem for many Web3 platforms. These issues make it hard for the systems to grow and serve more users effectively.

Transaction Speed: Many Web3 platforms process transactions slowly compared to traditional systems. This can frustrate users who expect quick and efficient transactions.
High Fees: As the network becomes congested, transaction fees can become very high. This makes it expensive to use the platform for regular activities.
Network Congestion: During peak times, the network can become overloaded with transactions. This leads to delays and a poor user experience, deterring new users.
Limited Throughput: Web3 platforms often have a limited number of transactions they can handle per second. This bottleneck restricts the platform’s ability to scale and handle more users.
Infrastructure Challenges: Scaling a decentralized network requires significant infrastructure. This includes more powerful hardware and advanced software solutions, which can be costly and complex to implement.

Regulatory Challenges

Regulatory challenges are a significant hurdle for Web3 platforms. They create uncertainty and can hinder the growth and adoption of these technologies.

Legal Uncertainty: Many countries have not yet established clear regulations for Web3 technologies. This uncertainty makes it risky for businesses and investors to engage with these platforms.
Compliance Costs: Meeting regulatory requirements can be expensive and time-consuming. Companies must invest heavily in legal advice and compliance measures, which can divert resources from innovation.
Jurisdictional Differences: Regulations vary widely from one country to another. This makes it challenging for Web3 platforms to operate globally and comply with different legal standards.
Risk of Legal Action: Without clear guidelines, Web3 projects risk facing legal action from regulators. This can result in fines, shutdowns, or other penalties that disrupt operations.
Impact on Innovation: Strict regulations can stifle innovation by creating barriers to entry for new projects. Entrepreneurs may be discouraged from developing new technologies due to the potential regulatory hurdles.

Security Vulnerabilities

Despite blockchain technology’s promise of enhanced security, Web3 platforms are frequently targeted by hackers. Smart contract bugs and vulnerabilities can lead to significant financial losses, undermining trust in the system.

Smart Contract Bugs: Errors in smart contracts can lead to security breaches. Hackers exploit these bugs to steal funds or manipulate transactions, causing significant financial losses.
Phishing Attacks: Web3 users are often targeted by phishing attacks. Hackers trick users into revealing private keys or sensitive information, leading to the loss of assets.
Code Audits: Regular code audits are necessary but expensive. Many projects skip this step, making them vulnerable to attacks and reducing overall security.
Decentralized Finance (DeFi) Risks: DeFi platforms are attractive targets for hackers. Vulnerabilities in these platforms can lead to large-scale thefts, shaking user confidence in the system.
User Error: Managing private keys and wallets requires technical knowledge. Mistakes by users, such as losing private keys, can result in permanent loss of access to funds.

User Experience

The complexity of using Web3 platforms, including setting up wallets, managing private keys, and understanding decentralized applications (dApps), is a barrier for non-technical users. Poor user experience limits mainstream adoption.

Wallet Setup: Setting up a digital wallet is often complicated. Users must follow multiple steps, which can be confusing and discouraging for beginners.
Private Key Management: Users must securely store and manage private keys. Losing a private key means losing access to funds, which is a daunting responsibility for many.
Complex Interfaces: Many Web3 applications have complex and non-intuitive interfaces. This makes it difficult for non-technical users to navigate and use these platforms effectively.
Learning Curve: Understanding how to use dApps and blockchain technology requires a steep learning curve. This barrier prevents widespread adoption among mainstream users.
Customer Support: Decentralized platforms often lack robust customer support. Users who encounter problems have limited resources for assistance, leading to frustration and abandonment.

Interoperability Issues

The lack of seamless interaction between different blockchain networks and protocols creates fragmentation. This lack of interoperability makes it difficult for users and developers to switch between platforms, limiting ecosystem growth.

Protocol Incompatibility: Different blockchain protocols often cannot communicate with each other. This incompatibility restricts data and asset transfer between platforms, limiting functionality.
Cross-Chain Transactions: Conducting transactions across different blockchains is challenging. Users must rely on third-party solutions, which can be unreliable and insecure.
Development Complexity: Developers face difficulties in building applications that work across multiple blockchains. This complexity slows down innovation and the creation of versatile dApps.
User Confusion: Users may become confused by the need to use multiple platforms and wallets. This confusion can deter adoption and reduce the user base of Web3 technologies.
Ecosystem Fragmentation: The lack of interoperability leads to fragmented ecosystems. Projects operate in silos, reducing the overall synergy and potential of the Web3 space.

Market Volatility

The value of Web3 tokens and cryptocurrencies is highly volatile. This instability makes them less attractive for everyday use and long-term investment, causing reluctance among potential users and investors.

Price Swings: Cryptocurrency prices can change dramatically within short periods. This volatility creates uncertainty and risk for users and investors.
Investment Risk: High volatility increases the risk for investors. Many are hesitant to invest in cryptocurrencies due to the potential for significant losses.
Merchant Reluctance: Businesses are reluctant to accept cryptocurrencies due to their unstable value. This limits the use of Web3 tokens in everyday transactions and commerce.
Speculative Nature: The market is often driven by speculation rather than intrinsic value. This speculative nature can lead to bubbles and crashes, affecting overall stability.
Economic Confidence: Volatility undermines confidence in cryptocurrencies as a reliable store of value. Users may prefer traditional financial assets that offer more stability and predictability.

Energy Consumption

Many Web3 platforms, especially those using Proof-of-Work (PoW) consensus mechanisms, consume significant amounts of energy. Environmental concerns and high operational costs are deterrents to broader acceptance.

High Energy Usage: PoW consensus algorithms require massive amounts of computational power. This leads to high energy consumption, raising environmental concerns.
Carbon Footprint: The carbon footprint of mining operations is substantial. Critics argue that the environmental impact of Web3 technologies outweighs their benefits.
Operational Costs: High energy consumption translates to higher operational costs. This makes running blockchain networks expensive and can deter new participants.
Sustainability Issues: The energy demands of Web3 platforms are not sustainable long-term. Finding environmentally friendly solutions is crucial for the future of these technologies.
Public Perception: Negative public perception regarding energy consumption can impact adoption. Potential users may be discouraged by the environmental impact of using Web3 platforms.

Hype and Speculation

The initial hype around Web3 led to speculative investments rather than sustainable growth. When the hype faded and speculative bubbles burst, many projects were unable to deliver on their promises, resulting in a loss of confidence.

Speculative Investments: Early investments were often driven by hype rather than value. This led to inflated project valuations that were unsustainable in the long term.
Bubble Burst: Many projects failed to meet their lofty promises. When the speculative bubble burst, investors lost confidence and significant financial losses occurred.
Market Corrections: The market frequently undergoes corrections to adjust inflated prices. These corrections can be severe, causing instability and loss of trust.
Unmet Expectations: High expectations set by the initial hype were often unrealistic. When projects failed to deliver, users and investors became disillusioned with Web3.
Trust Issues: The failure of overhyped projects eroded trust in the Web3 ecosystem. Building back this trust is essential for the long-term success of these technologies.

Lack of Killer Apps

Despite numerous projects, there is a scarcity of compelling, user-friendly applications that demonstrate the unique benefits of Web3. Without these “killer apps,” users and developers have little incentive to transition from traditional web platforms.

Limited Use Cases: Many Web3 projects lack practical and compelling use cases. Users need clear, tangible benefits to switch from traditional applications to Web3.
Complexity Barriers: Existing applications are often too complex for everyday users. Simplifying these apps is necessary to make them more accessible and attractive.
Adoption Incentives: Without compelling applications, users have little reason to adopt Web3 technologies. Incentives are needed to drive user engagement and growth.
Developer Focus: Developers need to focus on creating applications that solve real-world problems. Practical solutions will drive user adoption and showcase the benefits of Web3.
Innovation Gaps: There is a gap in innovation for creating user-friendly and impactful applications. Encouraging innovation and experimentation can lead to the development of these “killer apps.”

Centralization Trends

Ironically, many Web3 projects, over time, exhibit centralizing tendencies, either through governance models or token distribution. This contradicts the core principle of decentralization and alienates purists within the community.

Governance Models: Some projects adopt governance models that concentrate power among a few stakeholders. This centralization contradicts the decentralized ethos of Web3.
Token Distribution: Uneven token distribution can lead to power imbalances. When a small group holds a large portion of tokens, they can influence decisions disproportionately.
Project Control: Developers or founding teams sometimes retain significant control over projects. This undermines the decentralized nature and can deter community participation.
Community Trust: Centralizing trends erode trust within the community. Users and developers may feel disenfranchised and less likely to support centralized projects.
Decentralization Goals: The original goal of Web3 is decentralization. Projects that stray from this goal risk alienating their user base and losing credibility.

Economic Incentive Models

Poorly designed tokenomics and incentive structures can lead to unsustainable models. Without robust economic incentives, user retention and platform growth suffer.

Unsustainable Rewards: Many projects offer unsustainable rewards to attract users. When these rewards are reduced or eliminated, user interest often wanes quickly.
Inflationary Tokens: Over-issuance of tokens can lead to inflation. This reduces the value of tokens and can make them less attractive to hold or use.
Short-Term Focus: Incentive models that focus on short-term gains rather than long-term growth can be detrimental. Sustainable growth requires long-term planning and stable rewards.
User Retention: Retaining users is challenging without strong economic incentives. Projects need to design models that encourage long-term engagement and loyalty.
Economic Stability: Economic models must ensure stability and predictability. Users need confidence that the platform’s economy will remain viable and beneficial over time.

Conclusion

Web3 has the potential to revolutionize the internet by making it more decentralized and user-centric. However, significant hurdles such as scalability issues, regulatory challenges, and security vulnerabilities limit its success.

Addressing these problems is essential for Web3 to achieve its full potential. If these challenges can be overcome, Web3 could transform how we interact online. For now, understanding these issues is crucial for anyone involved in the Web3 space.