Background

I am on the record stating that there are no large-scale use cases for Blockchains except financial speculation and fraud. And I am not the only one.

While I do think there are legitimate business use cases for Blockchains, they are extremely focused and niche. For example, settling roaming credits between telcos in near real-time. Tracking items across trust boundaries in supply-chains. Important: Yes. Valuable: Very. But not paradigm changing since they usually run deep within industries, amongst a handful of companies, on private systems.

The same goes for marketing cases: Using Web3 technologies to create an exciting Metaverse experiences that can be used as part of marketing campaigns or during an event makes sense to get an audience and earned media. Virtual concerts with celebrities, virtual art or fashion shows, or in-game crossovers. Create NFTs, avatars or other kinds of digital collectibles based on the brand. Stay up to date with the current hype-cycles and exploit the Web3 trends as long as it makes sense. They might even generate new / separate streams of revenue, but usually insignificant compared to the core business. While important, they are not sustainable since brands will drop the Web3 narrative and follow the next big thing as the hype cycles evolve.

However, Web3 proponents keep claiming that there are indeed scale use cases that (will eventually) change entire areas of our digital lives and even the way we use the web. Unfortunately, the use cases they mention are often catch phrases with little substance, no information how they would work end-to-end and sometimes misunderstanding the problems they are claiming to solve. That doesn’t help.

What we need is looking at use cases and scenarios end-to-end for their long-term business viability: Do they actually represent a business? Are Web3 technologies better (more efficient, more accessible, more sustainable, etc.) than current solutions? And are they desirable in the first place or just neat ideas?

I started this list to collect proposed Web3 use cases & scenarios and analyze them for their long-term viability. I also wanted to collect my questions and doubts around them so they can be discussed.

Analysis

I will analyze the use cases based on the following criteria:

Based on the findings, I will classify the use cases as follows:

Note 1: I will ignore or dismiss all use cases around financial speculation. This includes all kinds of cryptocurrencies, digital collectibles, token assets, and commodities, as well as some aspects of DeFi (yield farming or anything else promising ponzi-like returns). While these are scale use cases, I classify them as undesirable since they are negative sum & based on greater fool dynamics: For somebody to make a profit, somebody else needs to lose more, which is not sustainable and will likely be regulated away.

Note 2: I will also ignore all illegal use cases. While extortion & ransomware or pyramid schemes & rug pulls are also a scale use case of Web3, a technology shouldn’t be proud to be the driver of specific types of crime.

Web3 use cases & scenarios

Are you missing a use case or disagree with the analysis? Write a comment or send a message to @dirksonguer — Thank you!

1. [Metaverse, Interoperability, Gaming] Web3 is required to provide interoperability for the Metaverse so that users can take their content from one virtual world to another

Example: “There is no metaverse without Web3, because you need to have that transaction layer so that you have interoperability between content and you can bring it from place to place.” — Robby Yung

While it might seem funny at first to bring items from Call of Duty into World of Warcraft, it immediately breaks immersion for all players when some characters run around the fantasy setting with assault rifles and military uniforms. It will inherently break world building, storytelling, and the magic circles of all participating platforms. This is undesirable for players.

Besides immersion, it is trivial for users to spin up their own virtual worlds, create all-powerful items and gift them to themselves. Transferring these automatically breaks the game balancing and economies in all participating worlds. This is undesirable for developers.

Finally, any creators of content want some form of control over where and how their content is utilized. Example: Prada might be OK to have their handbags used in a brand safe environment like Minecraft, but not in a violent and misogynistic world like Conan Path of Exile. This is undesirable for brands.

When attempted regardless, there are major technical and legal issues preventing implementation, to the point where the scenario is currently impossible to achieve. Working groups exist to change this but haven’t made noteworthy progress (and likely never will).

Assuming these can be overcome (most likely by separating specific contexts & concerns), above issues will require a layer of trust, governance, and regulations for transferring items between worlds, at which point the whole use case will be more efficient utilizing a trusted, centralized (or otherwise governed) platform, making it impractical to use Web3 technologies.

See here for details.

2. [Gaming, Economics] With Web3 Play-to-Earn games, players can generate a steady source of income by playing the games

Example: “The term “play-to-earn games” gives away the meaning as one could clearly infer what the games are for. You would basically play the games to earn some real income” — Diego Geroni

History has shown that Play-to-Earn always devolves into exploitative structures, with farming ending up in illegal or unethical sweatshops. If the main differentiator is play time, then the best way to maximize profit is by using — or rather, exploiting — cheap labor.

Today, Axie Infinity “bosses” exploit players in the Philippines to level up their game characters. The “gameplay” changed to which bosses can recruit the cheapest real-world labor. The cynical take is that this is “good, actually” while others see it as “digital colonialism”. My interpretation is that this is not sustainable and thus undesirable as a concept, likely to be regulated in the future, similar to gacha games.

From a game design perspective, game developers have dealt with Real Money Trade (RMT) since the early eighties, realizing that any game with an online component will have in-game items, artefacts and characters traded for real money. This is because all virtual worlds hold real world value, but also because play time is always a central resource in a game, especially in persistent online games. That also means that RMT has a direct effect on game resources and thus balance. If left unchecked, RMT will lean any persistent online game towards pay-to-win, which is undesirable from a game design perspective, making games repetitive, boring, and inherently unfair.

See here and here for details.

3. [Gaming, Ownership] With Web3 users can establish absolute control over their in-game assets and easily trade them with other players without any intermediaries getting involved

Example: “Proof-of-ownership is the new face of web3 in gaming. With the exponential popularity of NFTs, true ownership and interoperability in gaming is increasing. Players can exercise complete ownership over their in-game assets through NFTs.” — Akash Takyar

Game developers have dealt with Real Money Trade (RMT) since the early eighties, realizing that any game with an online component will have in-game items, artefacts and characters traded for real money. This is because all virtual worlds hold real world value, but also because play time is always a central resource in a game, especially in persistent online games. That also means that RMT has a direct effect on game resources and thus balance. If left unchecked, RMT will lean any persistent online game towards pay-to-win, which is undesirable from a game design perspective.

If RMT is desired by the game design, then the developer has a vested interest in keeping their platform and items secure. Duping and hacking instantly crash game economies, causing users to lose money, have bad experiences, and leave. As a result, developers are reluctant to integrate third party markets & trade APIs outside their control, usually making it expensive to maintain security, rendering blockchains impractical.

Also, items from a game are per definition centralized resources: The game client, issued by the game developer, is always the final arbiter of what characters and items are used and how they behave. The developers can just block individual users, items, NFT or otherwise, via blacklisting them in the client. It doesn’t matter if they still exist on the Blockchain in a wallet — they won’t be usable in the game anymore. This is what we see with central NFT exchanges in crypto already, circumventing royalties and blocking individual NFTs or collections.

Beyond that, any items only hold value within one specific game or platform. When the game is shut down, all tokens also lose value, making the decentralized aspect pointless. As a result, Web3 is a strictly less efficient technology to implement this use case. [See “Web3 is required to provide interoperability for the Metaverse so that users can take their content from one virtual world to another” above why they won’t be usable in multiple games].

What is left is using these games to sell & speculate on in-game items, which is neither a game, nor desirable (see negative sum unregulated financial speculation).

4. [Social, Ownership, Content] Web3 awards content creators with more freedom and the power to retain full control over their works

Example: “Web 3.0 decentralizes control from large corporations into the hands of content creators themselves and allows them to monetize their content without any intermediaries.” — Gautam Raturi

Few details exist how this is exactly supposed to work, but the general thinking goes something like this:

This covers the NFT digital collectible space, where the images / items are stored on for example IPFS, the NFT is minted on a blockchain, for example Ethereum, and smart contracts on the blockchain provide the logic.

However, this is just replicating how the web works already. The web is already fully decentralized — the centralization into “Big Tech” platforms happened because of economies of scale and because centralized solutions offer a better user experience.

In terms of economies of scale, centralized platforms are cheaper for operators and users. Blockchains work the other way around: As more people use them, their price per transaction rises. It is already expensive to put things on major blockchains. Choosing an alternative, less populated blockchain limits discoverability & reach for creators.

As for user experience, users won’t query a blockchain themselves, but use a frontend. And not all creators can code their own rules & logic, using tools usually provided by platforms. That means the platform owning the biggest user base (= drives the biggest audience to the content) and has the best tools (for content creation and monetarization) will emerge as new Big Tech, then dictating rules & regulations to participate. This is what we see with central NFT exchanges in crypto already, circumventing royalties and blocking individual NFTs or collections.

It is important to remember how Big Tech became big: By solving issues with the decentralized nature of the web, providing accessible and scalable solutions for content hosting, discovery, and monetarization. Google solved finding content, Facebook finding people, YouTube finding videos, Amazon finding things and so on.

The only way Web3 can be used at scale is to imitate the system it’s replacing, only less efficiently, making it impractical. Proof: Crypto re-centralizing into monopoly exchanges (Binance) and NFT collections into central marketplaces (OpenSea).

Beyond that, legal requirements around content moderation forces apps & frontends to filter contents that are on a social blockchain. As DeSo puts it:

Showing illegal or harmful content would not only subject them to copious amounts of litigation, but it would also likely make it such that nobody would want to use them. That content will still technically be on the blockchain but it won’t be practically accessible.

That means: Content creators might own the content, but platforms can arbitrarily choose to ignore / not expose it, making the use case impractical.

5. [Identity, Governance] Web3 allows governments to issue identity tokens, representing passport IDs, enabling easier government services

Example: “Blockchain-based digital identities improve access to digital government services while increasing efficiency, data security, and voting accessibility.” — ConsenSys

While identifier tokens are technically possible in the sense that a government can issue a token representing a personal identifier, the whole point of tokens is to be traded.

There are aspirations to create tokens that cannot be traded (see Soulbound Tokens), however these won’t work since the user can just sell / trade / give away the wallet the token is attached to.

There is currently no decentralized, digital process to provide strong, time stable KYC for a wallet. Achieving such a process traditionally requires a centralized or otherwise trusted entity, so that Web3 technologies are a strictly less efficient technology to implement this use case. This can be seen in the Zug uPort case, where the process requires multiple centralized and manual steps while the Web3 aspects do not provide any additional benefits over a traditional architecture.

Issuing actual proof of identity is a government-scale social problem, not a technical one. Regardless of how much anti-counterfeit technologies are used, manual verification and enforcement is always required.

6. [Identity, Events] Web3 NFTs improve the event ticketing experience for both the organizers and attendees

Example: “With the tokenized tickets, there will be no issues related to fraud or attendee identification.” — Adam Parry

NFTs are mechanically very close to a ticket, representing a token in somebody’s possession that is unique, verifiable and issued by a specific entity.

There are some issues in the sense that a token is not personalized, but assigned to a wallet, but most tickets are not personalized either or use a separate layer of identity verification, for example checking ID at the entrance.

The biggest difference is not the primary use, but enabling the secondary market, selling, or trading tickets. The claim is that this will somehow prevent scalpers that are currently asking for inflated prices on the after-market:

Fraud has plagued the ticketing market, causing real fans to pay higher costs while posing security risks to event organizers. Ticketing bots generate havoc by abusing technical developments, allowing online touts to buy tickets in bulk and resell them at exorbitant rates on secondary markets. — NFTPlattform App

However, there is little evidence of how using a platform that is optimized for token trading and financial speculation is preventing ticket scalping. In fact, we see the same behavior happening with NFT collections & drops where “early investors” use scripts to grab as many drops as possible to re-sell them at inflated prices.

Finally, blockchains are notoriously slow, which makes this use case impractical to be used in a scenario that requires high auto scaling capabilities.

7. [Identity, Events] Web3 POAPs, short for “Proof of Attendance Protocol, provide digital proof that users attended, or participated in, a physical, virtual, or spiritual event

Example: “POAPs benefit individuals by creating a completely personalized story of a person’s life, linking them with moments in time without sharing any data with big centralized platforms.” — Kirsty Moreland

The name is misleading since the tokens are not actual proof that a person has attended anything — it is just proof that a specific token is currently residing in a wallet. That token can be transferred, traded, or sold. As a concept, this is less practical than asking for ID & mail addresses of community members on check-in, which are likely to be more accurate proof of attendance and more stable in time.

In that sense POAPs are more like community pins, manifested as speculative assets. Blockchains only add public visibility and the ability for users to sell & speculate the digital community pins (see negative sum unregulated financial speculation) and brands using it as a marketing tool.

There are aspirations to create POAPs that cannot be traded (see Soulbound Tokens), however these won’t work since the user can just sell / trade / give away the wallet the token is attached to.

8. [Identity, Ownership] With Web3, users can prove ownership of physical items via on-chain tokens, simplifying their sales and transfer of ownership

Example: “The Gulfport four-bedroom house sold for $653,163 of ether, and the winning bidder now holds the NFT, signifying ownership on-chain.” — Propy

The challenge when transferring ownership of a physical object is not in “changing some entry in a database”, it’s the process surrounding it: Clearly defining what is transferred and subsequently owned, how the transfer is done, how liability is handled, how disagreements are settled and so on. As these aspects cannot be handled automatically on-chain, Web3 does not offer any benefits (see Oracle Problem).

Additional problems with a Web3 solution include: What happens if the NFT representing the ownership is stolen from a wallet? What if the property or object is sold traditionally, but the NFT is kept? What happens if the NFT is transferred, but the seller does not hand over the object?

The recognition and enforcement of ownership is a social construct, not a technical one, and neither police nor courts of law care if the database is centralized, decentralized or a napkin to uphold or apply local laws.

Automating them will not work because it’s not about the paper ownership and sales contracts are signed on. Making better paper doesn’t get rid of the social complexities. Moving the database entry to a public Blockchain won’t simplify or even accelerate much of the required process and structures, thus the use case solves the wrong problem, making the entire scenario irrelevant.

9. [Authentication, Ownership] With Web3, users can verify the authenticity of physical items via Physical Backed Tokens (PBT)

Example: “Physical Backed Token is an open-source token standard that connects ownership of physical items to their digital counterparts on the Ethereum blockchain.” — PBT.io

The challenge with provenance / proving authenticity of an object is how to entangle the certificate of authenticity with the physical object it authenticates. Logos, watermarks, imprints, embossing are all technologies to make it harder to create counterfeits. However, the goal can never be to have perfect provenance (that doesn’t exist), but to increase the effort to copy an object to the point where it becomes uneconomical for scammers.

With PBTs, there is a token representing a certificate of authenticity. The issue is connecting this digital token with the actual physical object. Using NFC chips, QR codes etc. just requires the scammers to create a 1:1 copy of it with the object. Blockchains provide an authenticated “piece of paper to print a certificate of authenticity onto”, but they literally do nothing about raising the bar for the entanglement with the physical object — nothing to authenticate the object itself.

Even the PBT standard acknowledges this:

Verification of authenticity of the physical item requires action from a trusted entity (e.g. StockX) — PBT GitHub

In the IoT space, this is a solved problem (or at least a problem that gets a lot of attention). Individual device twins are created through dedicated zero-trust infrastructures, making sure that the devices, connections and digital components have not been tampered with. Web3 technologies are impractical since they a) Must rely on other technologies (NFC, QR codes etc.) and b) are not as efficient as current hyper-scale IoT architectures that exist already.

10. [Content] With Web3 users can truly own their online media and are not reliant on platforms they bought or rented the assets from

Example: “Web3 is about ownership of data, being able to exchange them between platforms. Currently you can only use movies, music, or digital items only on platforms where you purchased them. In the future, the data will reside in your own wallet.” — Nino Bergfeld

The challenge in providing streaming media is not access control, it’s hosting, bandwidth, and rights management. Even if an NFT would represent the access to the movie “Star Wars, Episode 1”, the challenges are: Where is the file hosted? Who pays for the bandwidth if viewed? Who makes sure to pay royalties to the rights owner? Who makes sure the media can only be consumed in a way the rights owner has approved of? Who is liable if the media is not available anymore?

Web3 points to P2P file sharing networks as solution, however these don’t answer these questions in an adequate way. In fact, no Web3 technologies do.

If the content needs to be rights managed, then a centralized content access & delivery solution is always more efficient. If the content is in the public domain or needs to be downloaded & user managed, then existing internet technologies already provide the most democratic & efficient solution.

11. [Brands] Web3 allows brands to create new kinds of customer loyalty programs, providing users with loyalty points for participation, interaction, and purchases

Example: “Rewards won’t be limited to transactions whereby Brands will have the option to reward customers for their time and engagement.” — Sparta Loyalty

Creating a brand loyalty program on a public Blockchain is undesirable since all on-chain activity is visible to everybody. There is significant value in loyalty program data that any competitor and service provider will be able to see, analyze and potentially utilize to their advantage.

If the recommendation is then to use a private blockchain, then it’s not really decentralized, nor trustless. If the recommendation is to use a private database for customer data, then the use case is also impractical for Web3.

What is left is using Web3 as a marketing narrative.

Arguments that “Traditional loyalty programs are very one-sided and tend to serve the business more than the customer” completely miss the point that current brand loyalty programs already offer points & benefits for users — from rebates to additional products & services. Blockchains only add public transaction visibility (undesired, see above) and the ability for users to sell & speculate the points & benefits externally (see negative sum unregulated financial speculation).

Besides, users enter a relationship with a centralized entity — a brand. That means that there is no need for decentralization since there is only one central arbiter of the program, providing (and revoking) the benefits and values. Without the brand, all tokens are useless. As a result, Web3 is a strictly less efficient technology to implement this use case.

Case studies named above are marketing campaigns, created to unlock earned media and access to new capital by attaching to the current Web3 / Metaverse hype cycle — which is useful for brands, but not sustainable.

12. [Brands] Web3 allows brands to create new kinds of exclusive membership programs, giving token holders access to exclusive digital and physical experiences

Example: “You can also create your own VIP club with special perks. This opens up an entire ecosystem of benefits and experiences that are exclusively reserved for your brand’s biggest supporters.” — Cultos

The most important thing about exclusive membership programs is membership access control. This is often misinterpreted as “limited availability”, but the point is not to limit the number of memberships. Instead, members are limited to a desired target audience. This might be based on age, interest, location, context, wealth, whatever.

Brands usually have an interest to control the target audience because they get irritated when Joe Nazi and Jack Pedophile announce that they are proud members. Or if minors join their community, especially if illegal. Access to Flyfish Club via NFT sounds like a great idea until somebody shows up inebriated and drugged, holding a typewriter, trying to type their wallet password into it. Brands enforce terms of service, making sure that members have agreed to and follow a set of given rules.

As soon as any membership transfer rules and regulations are introduced, the use case will be more efficient utilizing a trusted, centralized (or otherwise governed) platform.

What is left is using Web3 as a marketing narrative while using traditional technology.

Besides, users enter a relationship with a centralized entity — a brand. That means that there is no need for decentralization since there is only one central arbiter of the program, setting (and revoking) benefits and values. As a result, Web3 is a strictly less efficient technology to implement this use case.