Now that I'm part of a Web3 company (TeiaSurf, whom I’m a co-founder of) I've noticed there's a couple of big bottlenecks in the crypto industry that has to be addressed before we start seeing "real" utility in the NFT space. There are a lot of cultural bottlenecks which will be challenging for the industry as a whole, but there are a number of practical issues that will also need to be solved as well. The cultural issues are subjective and messy, but here I’d like to focus on the more practical sides of the industry since you’re likely to find more agreement among the builders out there. Some of them are:

1. Decentralized Storage and Gateways: Any dApp project serving content to the user will eventually run into a problem where they realize that using IPFS and public gateways isn't fast/reliable enough to meet Web2 standards - this the the main reason why we still don't see video content on Web3 platforms yet, despite the obvious fact that it’s what the public currently demands. (I don't think that the novelty of trying to force people to appreciate low-res JPEGs is working, personally.)

2. Content Compression: When uploading their works onto the blockchain, artists often maximize their file sizes, under the impression that their works will be there for posterity. They are approaching it from an archival standpoint, but companies trying to build dApps on top of these collections often face a problem where the files they're serving are just too large for it to be profitable. (See #1: bandwidth is not free.) So that creates a need for file compression services and/or industry standards that work for both artists and companies. (Right now it is basically chaos, if we’re being honest - where is that Pied Piper compression algorithm when you need it?)

3. Indexing: In order to pull data from the blockchain itself, there's usually a need for indexers to "translate" what exists on there into a query-able format. Having the user interact with the blockchain itself for every interaction is just not practically feasible right now. (It seems logical for indexing services to provide hosting/gateway/compression services as a way to earn revenue, since these things can be handled all at once on the backend, but that’s TBD.)

4. Up-Front Costs: Everything listed above costs money - potentially thousands of dollars a month even if your dApp is small - which is out of reach for most people out there. Before crypto can claim itself to be a tool of democratization, the economic realities on the ground must also match its ideals. As it stands now, the barriers of entry to start a viable Web3 project is still a bit too high to be considered competitive.

Most "Web3" companies of the last bull run basically cut most of the corners on these issues and “solved” the problem by running things on centralized servers, paid for by VCs and investor capital. (That’s why you may have noticed a weird cognitive-dissonance between what people were saying vs what they were doing…decentralization became a marketing buzzword rather than an expression of reality.) But 99% of them are on track of going under once that cash infusion runs out - that's the existential threat that many crypto startups will be facing over the next few years.

The solution is actually a pretty simple one - you pass the costs of these services onto the user by adding a "service fee" by leveraging smart contracts, per transaction. This gets the quality of service up to Web2 standards while also reducing up-front costs at the same time, allowing more players to enter the game. But the industry has been reluctant to adopt this model since they're still assuming that the user will not pay for anything beyond “free”. So a common pattern you see in startups (not just for Web3, but Web2 as well) is that a company may initially start with a world-class team and the best marketing practices that money can buy, but eventually fizzles out as their product fails to achieve profitability without subsidization from external sources.

Up until now, low-interest loans allowed for many of these “zombie” companies (including some very well-known ones) to perpetually exist, despite being unprofitable for a very long time. That strategy will no longer work during a “real” recession, which is likely to come over the next few years, if not longer. This is what Warren Buffet calls the “tides pulling out” - I think that many will be surprised by the number of companies and organizations (including public/non-profits ones, since capital gains income is about to run out as well) going under over the next few years - many of them previously thought of as “untouchable”. (Change is coming, whether we want it or not.)

In order for Web3 companies to compete against existing Web2 incumbents, they’re going to have to offer customers something genuinely different - which in today’s world, can be summed up with one phrase: horizontal integration. That means, automated partnership deals (smart contracts), encouraging user-to-user transactions (rather than user-to-platform), decentralized decision-making (DAOs), lowering the barriers of entry (dApp networks rather than data servers), and so on. Web2 companies have already perfected the vertical integration model and have decades of experience - trying to beat them at their own game is futile and ill-advised - the only way to win is to change the game itself.

Over the next few years we’re going to see Web2 companies posing as Web3 startups disappear as people realize that many of them were never really “serious” about the idea of decentralization - there is no way to make a Web3 product work without up-front fees and ceding at least some of the decision-making powers to the user themselves. Many companies have paid lip service to the idea of decentralization in public but never actually implemented them in practice - these ideas are simply not in the cultural DNA of many startups right now, where the notion of “total founder control” still reigns supreme. (Time will tell if the logical conclusion of this mindset - FTX - will deter VCs from doing this again. Old habits die hard, after all.)

The technology to do horizontal integration is already there - and you don’t need to be a top-tier, Silicon Valley VC-backed startup with millions of dollars in funding to execute on what is essentially a very simple idea: connect dApps with other dApps, paid for by transaction fees and enforced by smart contracts. Fees can adjust itself according to demand and need - and is essentially infinitely scalable as long as the chain itself is still functional. While the big companies continue to fight each other trying to become the next monopoly, projects that make the internet truly “horizontal” will basically be the ones to rule the day.

--

A lot of the “big” ideas in crypto can probably be executed by a small team of dedicated people - if they’re able to see the big picture, avoid cutting corners, and resist the allures of fundraising for its own sake. There will no longer be a need for companies to manually curate content, and algorithms/artificial intelligence-based solutions will simply be replaced by people recommending content to other people, while also getting paid in the process. A win-win-win for everyone, and society itself will also benefit from it in the form of real economic growth. It’s a sort of thing that once released into the wild there will be no way for anyone to contain it - including the creators themselves.

I’ve been with crypto for almost a decade now, but I honestly thought someone else would have done the whole horizontal integration thing at this point - only everyone is only always talking about it everywhere only all the time, after all. The reality is that a lot of projects that attempted to disrupt the market in this way were either beaten, pacified, or bought out by the incumbents - largely paid for by the infusion of cheap capital from low-interest rates.

But now that’s gone, what comes next? If there’s any time to take a bet on the unknown, it would be now, really. The demand for something genuinely new is at its peak - there’s a reason why people flocked to NFTs even though its infrastructure was nowhere near ready - the very idea of change was enough to prompt a frenzy. We’re just waiting for someone to build the next Pandora’s Box at this point.