Under the Hood: Is Web3 really decentralized?

When I first heard of Web3, I was excited about the promise of a decentralized ecosystem. Eliminating intermediaries in financial transactions would reduce fees while decentralizing virtual platforms would give users a voice. Still, as I’m writing this article, over half of the Ethereum network’s nodes are hosted on Amazon servers, and the wealthiest 1% of Bitcoin holders have more tokens than every other wallet combined. Facts like this lead me to wonder how decentralized Web3 is. 

In this article, we’ll zoom out and look at the various ways Web3 could be more decentralized.

The metaverse

According to The Sandbox’s whitepaper, “The Sandbox decentralized platform allows players and creators to own a piece of our gaming Metaverse (LAND), participate in the governance and economy (SAND), while creating and enjoying a simple way to benefit from their playing time.” SAND holders get to participate in the project’s DAO and vote on key decisions about how the game is run. Section four of the whitepaper suggests that the game was released in a semi-decentralized way, with some elements being controlled by The Sandbox and others by the players.

However, it’s worth noting that 54.82% of the minted SAND tokens have been or will be distributed to the company reserve, advisors, and team. Nearly 20% of the tokens are being distributed to the team, and these team members could theoretically buy more tokens on the open market. Similarly, the Decentraland team and early supporters received a combined 20% of the available MANA tokens. Of course, I’m not saying the teams use these tokens to swing votes. But I am saying they could, and the system isn’t as “trustless” as we’d hope.

dApps

dApps have to use APIs to connect to blockchain networks. On the Ethereum network, many dApps use APIs from Infura and Alechemy. Unfortunately, it’s hard to find these two companies’ exact market share. Still, according to an article on Bloomberg, “at times, more than 50% of transactions on the Ethereum network ran through Infura.”

Infura has launched an early access program for a decentralized version of its API, which will hopefully help solve the dApp centralization issue. Until it releases, most of the Ethereum dApp ecosystem will be partially centralized.

Wallets

Matthew Rosenfeld, the creator of the encrypted messaging app Signal, wrote a thought-provoking essay in 2022 called “My First Impressions of Web3.” In this essay, he states, “When you connect a wallet like MetaMask to a dApp, and the dApp interacts with the blockchain via your wallet, MetaMask is just making calls to Infura!”

Metamask has around 80% market share of all Ethereum wallet users, and, interestingly, both Metamask and Infura are owned by Consensys.

Final thoughts

I want to point out that this article isn’t meant to be a scathing review of the Web3 ecosystem. Like most of you, I love Web3 and its many benefits. I simply wanted to look at the inherent centralization that occurs when major companies get involved in an otherwise decentralized ecosystem. Centralization may be the first step of many toward true decentralization. 

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*All investment/financial opinions expressed by NFT Plazas are from the personal research and experience of our site moderators and are intended as educational material only. Individuals are required to fully research any product prior to making any kind of investment.