Web3: The Biggest Mistake of Cryptocurrency
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Web3: The Biggest Mistake of Cryptocurrency
How has cryptocurrency deviated from its original vision by prioritizing infrastructure innovation while neglecting the monetary fundamentals needed to fulfill its promise of financial sovereignty?
Navigating Web3 tides with focused insightsAuthor: Zeus
Translation: Block unicorn
Introduction
In recent writings, I've explored how cryptocurrency has strayed from its original vision—prioritizing infrastructure innovation while neglecting the monetary foundations needed to fulfill its promise of financial sovereignty. I traced how this divergence led to a disconnect between technical achievement and sustainable value creation.
What I haven't fully addressed is how the industry fundamentally misjudged which applications are truly worth building. This misjudgment lies at the core of cryptocurrency's current struggles—and points toward where real value might ultimately emerge.
The Illusion of the Application Layer
Cryptocurrency narratives have evolved through several phases, but one consistent theme has been the promise of revolutionary applications beyond finance. Smart contract platforms positioned themselves as the foundation for a new digital economy, with value flowing back from application layers to infrastructure. This narrative gained momentum with the "fat protocol thesis"—the idea that unlike the internet, where TCP/IP captured little value while Facebook and Google amassed billions, blockchain protocols would accumulate most of the value.
This created a specific mental model: layer-1 blockchains (L1s) gain value by supporting diverse application ecosystems, much like Apple’s App Store or Microsoft Windows derived value from third-party software.
But there's a fundamental misjudgment here: cryptocurrency attempts to impose financialization onto domains where it doesn’t naturally fit—and where it brings little genuine value.
Unlike the internet, which digitized activities people were already doing (commerce, communication, entertainment), cryptocurrency tries to inject financial mechanisms into activities that don’t need or want them. The assumption is that everything—from social media to gaming to identity management—will benefit from being financialized and put "on-chain."
The reality is quite different:
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Social apps with tokens have largely failed to achieve mainstream adoption, with user engagement driven primarily by token incentives rather than underlying utility.
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Gaming applications continue to face resistance from traditional gaming communities who see financialization as undermining, not enhancing, the gaming experience.
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Identity and reputation systems struggle to demonstrate clear advantages over traditional approaches when token economics are involved.
This isn’t just a “we’re still early” issue. It reflects a deeper truth: finance exists as a tool for resource allocation, not as an end in itself. Financializing activities like social interaction or entertainment misunderstands finance’s core role in society.
Distinguishing Game Markets
It's worth discussing apparent counterexamples such as CS:GO skin markets or microtransaction systems in popular games. These successful markets may seem to contradict arguments against game financialization, but they highlight an important distinction:
These markets represent closed ecosystems of optional accessories or collectibles coexisting alongside gameplay—not attempts to financialize the core gameplay itself. They resemble commodity or memorabilia markets more than fundamental changes to how games operate.
When crypto games attempt to financialize actual gameplay mechanics—making playing explicitly about earning money—they fundamentally alter the player experience, often undermining the essence of what makes games engaging. The key insight isn’t that games can’t have markets; it’s that turning gameplay itself into a financial activity changes its fundamental nature.
Blockchain Technology vs. Trustlessness
A crucial distinction often overlooked in crypto discussions is that between blockchain technology itself and the property of trustlessness. These are not synonymous:
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Blockchain technology refers to a set of technical capabilities for creating distributed, append-only ledgers with consensus mechanisms.
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Trustlessness is a specific property whereby transactions can be executed without reliance on trusted third parties.
Trustlessness comes with tangible costs—in terms of efficiency, complexity, and resource demands. These costs require explicit justification and only make sense in specific use cases.
When entities like Dubai use distributed ledger technology to manage property records, they are primarily leveraging the technology for improved efficiency and transparency—not pursuing trustlessness. The land department remains a trusted authority; the blockchain merely serves as a more efficient database. This distinction is critical because it reveals where value actually resides in these systems.
The key insight is that trustlessness has real-world value in only a narrow set of domains. From property records to identity verification to supply chain management, most activities fundamentally require trusted entities for real-world enforcement or validation. Moving the ledger onto a blockchain doesn’t change this reality—it simply changes the technology used to manage records.
Cost-Benefit Analysis
This leads to a straightforward cost-benefit analysis for every platform:
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Does the platform genuinely benefit from removing trusted intermediaries?
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Does this benefit outweigh the efficiency costs of achieving trustlessness?
For most non-financial applications, the answer to at least one of these questions is “no.” Either they don’t truly benefit from trustlessness (because external enforcement is still required), or the benefits aren’t sufficient to justify the costs.
This explains why institutional blockchain adoption focuses primarily on efficiency gains rather than trustlessness. When traditional financial institutions tokenize assets on Ethereum (an increasingly common practice), they leverage the network for operational advantages or market access while maintaining traditional trust models. Blockchain serves as improved infrastructure—not a mechanism to replace trust.
From an investment perspective, this creates a challenging dynamic: the most valuable aspects of blockchain technology can be adopted without necessarily generating value for any particular chain or token. Traditional institutions can implement private chains or use existing public chains as infrastructure while retaining control over the most valuable layers—asset and monetary policy.
The Path of Adaptation
As this reality becomes clearer, we’re seeing a natural adaptation process unfold:
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Technology adoption without token economics: Traditional institutions adopt blockchain technology while bypassing speculative token economies, using it as a better “plumbing” for existing financial activities.
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Efficiency over revolution: The focus shifts from replacing existing systems to incrementally improving their efficiency.
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Value migration: Value flows primarily to specific applications with clear utility, rather than underlying infrastructure tokens.
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Narrative evolution: The industry gradually recalibrates how it articulates value creation to align with technological realities.
This is actually a good thing: Why should a facilitator siphon off all the value from value creators? This rent-seeking behavior is far removed from the capitalist ideals many believe underpin the entire movement. If the primary way to capture value had been TCP/IP instead of applications built atop it (as the “fat protocol thesis” implies), the internet would look very different—and almost certainly worse! The industry isn’t dying—it’s finally confronting reality. The technology itself is valuable and will likely continue evolving and integrating with existing systems. But the distribution of value within the ecosystem may look very different from early narratives.
Root Cause: The Abandoned Original Vision
To understand how we got here, we must return to cryptocurrency’s origins. Bitcoin did not emerge as a general-purpose computing platform or a foundation for tokenizing everything. It emerged explicitly as money—a response to the 2008 financial crisis and the failures of centralized monetary policy.
Its core insight was not “everything should go on-chain,” but “money should not depend on trusted intermediaries.”
As the industry expanded, this original intent was diluted—or outright abandoned—by a growing number of projects. Platforms like Ethereum extended blockchain’s technical capabilities but also diluted its focus.
This created a strange disconnection within the ecosystem:
Bitcoin retained its monetary centrality but lacked programmability beyond basic transfer functions.
Smart contract platforms offered programmability but abandoned monetary innovation in favor of a “blockchain-for-everything” philosophy.
This divergence may be the industry’s most serious wrong turn. Instead of building more sophisticated capabilities on top of Bitcoin’s monetary innovation, the industry pivoted toward financializing everything else—an inverted approach that misunderstood both the problem and the solution.
The Way Forward: Returning to Money
In my view, the path forward lies in reconnecting blockchain’s significantly improved technical capabilities with its original monetary purpose. Not as a universal solution to every problem, but by focusing on creating better money.
Money aligns perfectly with blockchain for several reasons:
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Trustlessness matters: Unlike most applications requiring external enforcement, money can operate entirely within the digital domain, with rules enforced purely by code.
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Native digital operation: Money does not require mapping digital records to physical reality; it can natively exist in digital environments.
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Clear value proposition: Removing intermediaries from monetary systems offers real efficiency and sovereignty benefits.
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Natural alignment with existing financial applications: The most successful crypto applications (such as trading, lending, etc.) are naturally tied to monetary innovation.
Perhaps most importantly, money is inherently an infrastructure layer upon which everything else is built—without needing to participate deeply in those higher layers. Yet cryptocurrency inverted this natural relationship. Instead of creating money that seamlessly integrates with existing economic activity, the industry tried to rebuild all economic activity around the blockchain.
The strength of traditional money lies precisely in this application-layer approach. Businesses accept dollars without needing to understand the Federal Reserve. Exporters manage currency risk without rebuilding their entire operations around monetary policy. Individuals store value without becoming experts in monetary theory. Money facilitates economic activity—it doesn’t dominate it.
On-chain money should work the same way—accessible to off-chain businesses through simple interfaces, just as digital dollars can be used without understanding bank infrastructure. Enterprises, institutions, and individuals can remain entirely off-chain while leveraging the specific advantages of blockchain-based money—just as they use traditional banking infrastructure today without being part of it.
Rather than trying to build “Web3”—a vague concept attempting to financialize everything—the industry will find more sustainable value by focusing on building better money. Not merely as a speculative asset or inflation hedge, but as a complete monetary system with mechanisms that make it reliably functional across different market conditions.
This focus becomes even more compelling when considering the global monetary landscape. The evolution of the global monetary system faces unprecedented coordination challenges. The inherent instability of the current system and rising geopolitical tensions create real demand for a neutral alternative.
The tragedy of the current state is not just misallocated resources, but missed opportunity. While incremental improvements to financial infrastructure do have value, they pale in comparison to the transformative potential of addressing the fundamental challenges of money itself.
The next stage of cryptocurrency’s evolution may come not from further expanding its scope, but from returning to—and fulfilling—its original goal. Not as a universal solution to every problem, but as reliable monetary infrastructure providing a solid foundation for everything else—requiring no deep understanding of how it works.
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