Web3, the Metaverse, the Internet, and Serial Experiments Lain

In 1998, an estimated 147 million people worldwide accessed the internet at least once a week, a mere three percent of the world's population at the time. Even in developed countries, only seventeen percent browsed the internet regularly. To most people, the internet was something they had only heard of, but millions of people were already daily users.

At the time, at least in some countries, computers and the internet captured the public imagination. Due to rapid technological progress, many looked forward to seeing how new advancements would improve society, feared that it would all come crashing down due to the Y2K bug, or worried that it would lead to a dystopian future.

Today, cryptocurrencies occupy a similar space. Estimates on the number of crypto owners vary widely, but the highest estimate I've seen is 300 million, with 200 million new users in 2021. Even if these numbers are inflated, Deutsche Bank estimates that crypto ownership is on a similar growth trajectory to the internet.

A graph comparing the adoption of cryptocurrencies to the adoption of the internet.

Also in 1998, the anime series Serial Experiments Lain premiered on Japanese TV. It explored, among other themes, how the internet would change society. Many credit it for predicting the future. In reality, many of its predictions were observations of well-established trends on the internet, but a few were truly prescient, and apply just as much to cryptocurrencies, Web3, and Facebook's Metaverse.

Facebook's Metaverse

Unfortunately, this comparison requires a brief description of Facebook's Metaverse. In late October of last year, Facebook Inc. rebranded to Meta Inc and announced a slew of VR and AR digital experiences they dubbed the Metaverse. Because the rebranding is so recent, most people still associate this Metaverse proposal with Facebook, so to avoid confusion, I will refer to it as Facebook's Metaverse, rather than Meta's Metaverse.

The announcement was accompanied by an hour-plus video in which Mark Zuckerberg shows off demonstrations of speculative technology. I won't link to the video here because I don't want to drive traffic to it. Instead of a serious description of technology that will improve people's lives, the video is a long PR piece for Facebook and some of its partners. Zuckerberg tries to paint a picture of a company that improves society, respects privacy, and is working towards creating a decentralized system that no one party controls—the complete opposite of how people view Facebook.

Many of the demos are more fiction than reality. Although Zuckerberg emphasizes that the technology is at least five years away, anyone who spends the time to think about the demos will see that they're not possible. For example, one of the demos shows people playing virtual basketball with AR glasses on real basketball courts across the world. The actors behave as if the virtual ball is tangible, and the real net even swishes as the virtual ball passes through it. In reality, there's no way to emulate the tactile sensations of a physical ball, and if this demo ever ships as a real product, it will probably be closer to Wii Sports than real basketball. There's nothing wrong with Wii Sports, but it's not the future of technology, nor is it an efficient use of the world's basketball courts.

The claim that Facebook wants to relinquish control may be the most believable. Financially, Facebook's Metaverse will be run on NFTs, with Facebook supplying many of the tools to create digital items an experiences. Depending on how they set it up, Facebook could get a cut of NFTs created with these tools, even on a decentralized blockchain they don't control. It would free them from a lot of the burden of moderation, and it could provide a shield against regulatory scrutiny. But, as Zuckerberg notes in the video, this will require establishing new norms on the internet.

Norms, Digital Property, and Right-Clicking

Those who follow the NFT space closely may be familiar with right-clicker mentality. In short, as sales of NFT-backed JPEGs took off, critics noted that the JPEG files themselves can be downloaded by anyone, regardless of whether they own the NFT. Crypto proponents counter that there is more to digital ownership than being able to store, view, edit, and enjoy an image whenever you want, that owning an image's an NFT imparts social clout and financial value.

In the virtual worlds of some online games, they're right. From cosmetic items to MMO gear to entire characters, gamers have proven that they are willing to spend large amounts of money and time on in-game items. Games have been built around these kinds of digital economies, sometimes leaking out into real money trading. Players seek out the rarest items in these games to show off or sell them for a profit.

But these in-game economies are only possible because the developer or publisher has complete control over the game servers. Rare cosmetic items are little more than 3D models and associated data. because these files are typically stored locally with every game install, gamers could mod the games to swap the files of a common item for a rare one, but the swap would only be visible to them locally. The servers would still inform other players that the user owns only the common item.

Similarly, NFT-backed items are just data files. Just like anyone can right-click on an image backed by an NFT, anyone can download these data files and re-mint them as a new NFT. This is important because one of the norms Zuckerberg and NFT proponents are pushing for is that digital items can be used between games and experiences.

Currently, if I spend time or money acquiring a rare item in one game, I can't bring it to another, and it will be gone forever at some point in the future when the servers are shut down. I don't truly own those items, but if I could bring them into other games, and sell them after the original game shuts down, I have at least some ownership in them.

In order for this to work, games need to be designed with some kind of interoperability, and there will need to be some way for games to make money. The primary reason why items are currently locked to games is so that developers and publishers can make money off of them. If Square Enix opens a new online game that sells cosmetic items, but players bring in millions of items from Ubisoft games, or even previous Square Enix games, Square Enix might lose money on the game. In a decentralized blockchain-based system, there's no technological enforcement of these constraints. Interoperability, profitability, and copy prevention must be enforced by social norms.

That's a tall order, but in a way, Web 2.0 dominated over Web 1.0 due to changes in social norms, so it's not outside the realm of possibility. At the same time, the Web 2.0 norms are a large part of the reason why digital ownership is so desirable.

Web 1.0

Digital ownership in the early days of the web meant nothing more than downloading a file. At their core, computers are devices that are good at digitizing analog data, editing it, and storing it. The internet, in turn, is a means of transmitting perfect copies of this data to other computers. This combination was devastating to creative industries, especially the music industry. If the internet were faster, storage greater, and screens better, in the 1990s, it's possible that movies and TV would have followed the same trajectory.

Copyright infringement was and still is a crime, at least in the United States, but that didn't stop music piracy on a mass scale. Music was expensive, and someone who might otherwise only be able to buy a handful of CDs a year would be able to freely download decades of popular music. In a sense, it was incredibly empowering, like episodes of Star Trek, where the characters could pull up recordings of whatever historical media just by asking the computer for it.

This expanded access is definitely a benefit to the average person. It was bad for industry investors and executives, and it was definitely bad for some artists, but at the time, there was some excitement that this could be a net win for artists. It was widely repeated that most artists made very little from album sales, relying instead on concerts, merchandise, guest appearances, and endorsements to make money. Most of the money from an album went to rights holders, manufacturers, distributors, and stores. If musicians could sell albums directly to consumers for even $2 a piece, they could make more money, and freed from corporate control, an even playing field on the internet could allow artists who were unable to get the attention of traditional record labels to prosper.

The obvious problem with this, of course, was that everything on Napster was free, and that's a hard price point to compete with. CD prices dropped, and digital MP3 storefronts opened, but the number of MP3s sold never came close to the number of CDs sold.

As strange as it may seem, this decimation of the music industry was exciting from a certain point of view. It wasn't great for the US economy, and people certainly lost their jobs over it, which is terrible, but it showed the potential for the internet to completely transform society. Just by allowing users to communicate anonymously, the internet had weakened an industry that was built upon copyright law. The law had been forced to bend to the technological reality of the internet. How many other laws would follow? Without the ability to regulate speech online, how many oppressive governments would be unable to enforce censorship laws, and thus ultimately fall?

We know now how naive these sentiments were.

Web 2.0

In the crypto community, there's an oft-repeated argument that Web 1.0 was decentralized but not interactive, Web 2.0 is centralized but interactive, and that Web3 will be both decentralized and interactive. This description of Web 1.0 and Web 2.0 has become the dominant narrative, and is how the first two ages of the web are described on Wikipedia, but I don't fully buy into it. From Usenet to guest books to web forums, there were plenty of interactive, user-generated sites on Web 1.0. There was also a fair bit of centralization. Most personal web pages were hosted on services like GeoCities, Yahoo, and Xoom. Blogging mostly centered around a few providers like LiveJournal and Blogger.

Unarguably, however, Web 2.0 did make participation easier, and increased social interaction on the web. It eliminated Web 1.0 pain-points around learning HTML, FTP software, BBCode, or whatever other interface a provider would use instead. Take as an example a restaurant with a menu that changes often, and wants to advertise your latest offerings online. Instead of logging in and modifying a web page with your menu, they just make a new post on social media. They could even just take a photo of their physical menu and post it to Facebook. In the old days, they'd have to make sure to delete the old photos so you don't fill up your space, and update their site to embed the new photo. They'd probably also have to provide a text description or risk violating the ADA, but with OCR built into modern operating systems, this is becoming less of a concern.

There are many opinions of when Web 2.0 really took off. Some say it was with the rise of social media, others point to the widespread adoption of XMLHttpRequest, and some say it was just a marketing term to help excite investors after the dot-com crash, but I like to think it was the proliferation of high-speed internet, inexpensive storage, and increased computing power that separated Web 2.0 from 1.0. On the Web 1.0 forums, if you wanted to have an avatar or signature image, you often had to try to find external image hosting that allowed hotlinking. Forum owners couldn't afford to be serving everyone's images, among Web 2.0 services, it's the norm to host even video files that users upload.

That increased bandwidth helped to fight back against piracy. Sure, you can still pirate just about whatever you want, but it's often so much harder than legal options that most people don't bother. Piracy typically takes place on peer-to-peer networks that require special software, host viruses masquerading as the media you're looking for, and often don't have any seeders. You might also get a copyright strike from your ISP. Want to listen to a song? You can probably find it on Spotify or Youtube for free. You might have to listen to some ads, or pay for a subscription, but it costs less than buying CDs. Even with a large number of users getting a free ride with ad blockers, music industry revenue is starting to climb back up to where it was at its peak, thanks to streaming.

This is enabled by centralization. Much of the internet runs on AWS now because economies of scale drastically reduce the cost of storage and bandwidth. Only extremely large companies can afford to build enough infrastructure to hit that same scale. This simplifies enforcement for copyright holders, who now only need to monitor the systems of a few large companies. In turn, this makes it difficult for smaller companies. Anyone who wants to launch a real Youtube competitor needs to have a broad catalog of content, but small companies can't afford the licensing deals that Youtube has with copyright holders. Even Twitch is reduced to muting music in VODs, even though they're owned by Amazon, one of the largest companies in the world.

Streaming wouldn't be economically feasible without cheap hosting and broadband, but it also wouldn't be successful without its low price point. Services are often free with ads or have a monthly cost less than a single CD. If you used to buy one CD a month, you now have access to a larger library of music than you could have dreamed of in the CD age, for less money. If you could rarely afford CDs, you now have access to music at a price you can more easily afford. With a larger audience, it's possible to make more money by charging less.

But streaming music doesn't grant you ownership over it. Spotify could rotate music you enjoy out of its catalog. Amazon or Apple could ban you for a perceived terms of service violation, and legitimate or not, you could lose access to all your digital movies and books. You're also renting instead of buying, so if you used to sell old CDs to buy new ones, or collected them, speculating that they might be worth something someday, that's no longer an option.


Web3 aims to change that proposition. By attaching the notion of ownership to digital files, no one can take them from you and you can resell them whenever you want. Storage and bandwidth is decentralized, with a pricing model built in, potentially allowing it to hit the same mass, and thus economies of scale, as centralized systems. With a permissionless data model, it's resistant to censorship, either governmental or corporate.

Whether or not it can actually live up to those claims has been extensively debated elsewhere, but those are the promises that Web3 makes. Personally, I'm skeptical. I see a lot of the same naivety in that vision that we had in the Web 1.0 days. Governments and large corporations won't cede power without a fight, and should Web3 become popular, I have no doubt they'll be able to twist it to their benefit. At its heart, cryptocurrency is capitalist, and for all its benefits, capitalism is controlled by those with the most capital, regardless of how well its rules are designed. That sounds defeatist, but there's always a possibility that I'm wrong, so just like with Facebook's Metaverse, I'm going to take the Web3 proponents at their word, that they will build a system that does what they promise.

Even so, I'm not sure that ownership is a compelling enough reason to lure people over to Web3. Ownership has costs associated with it, and in my mind, digital renting of files displaced downloading MP3 files because the benefits greatly outweigh the costs. The inability to resell digital media is more than offset by the access to a vastly larger catalog of music. Widespread access to streaming services also reduces the monetary value of individual songs and albums. On top of that, owning files puts the burden of storage, organization, backup, and playback on the user. That's appealing to a certain type of person, but most people won't want to do that work.

Likewise, I don't think decentralization will be enough to convince enough people to download a DApp browser and learn how to use it. There's a reason why people migrated towards more centralized services in the first place. As much as I might hate to admit it, network effects can be very beneficial. Permissionlessness is also not very attractive, as, outside of censorship in oppressive regimes, very few people will ever directly experience the downsides of tight control.

In my mind, that leaves Web3 with only one killer feature. It's the same feature all large crypto projects have going for them right now: hype around the potential for profit.

Playing to Win in Society

While the popular conception of crypto is that of large profits from trading cryptocurrencies and NFTs, both Facebook and Web3 proponents have suggested that play-to-earn could be a large part of the ecosystem. Real money trading has been a thing since the early days of MMOs, and it hasn't gone away, despite attempts by some games to minimize it. Famously, Diablo III attempted to integrate this into the game, protecting users from scams, and taking a small cut of all transactions. It was widely criticized, and eventually shut down for ruining the game balance, but that doesn't mean it couldn't work for games designed around it. After all, gamers hated Oblivion's horse armor DLC, but expensive cosmetic DLC has been successful in games since.

A common argument against this is that it ruins the fun of games, and sure enough, if you turn it into a job, even a game will cease to be fun, but it's something to do that can earn money. Worldwide labor participation has been trending downwards for years as increases in efficiency have allowed fewer and fewer workers to meet worldwide demand. Even in a tight labor market, many people aren't given the opportunity to work because their skills are not a match for what's in demand where they live, and they don't have the means to relocate.

Video games can give these people an illusion of the American Dream when the real world denies it to them. Making money in a game requires learning skills and putting in the hours, just like a real job, but since these kinds of games are designed to be accessible to a wide audience, the skills are fun and easy to learn, and there is comparatively little physical labor. Games also start the player with very little, and allow them to attain in-game money and power. When you're unemployed or underemployed, it's very easy for games like this to trick you into feeling like you're doing economically valuable work and improving your situation. A study from 2009 showed that gold farmers made, on average, $145 a month, and though I couldn't find any newer statistics, I can't imagine it has improved much. It may be better to have the money than not, but in all but the most impoverished nations, it's not going to make a material difference.

Facebook's marketplace for digital goods will face a similar issue. With anyone free to produce digital items for the Metaverse, there will be a lot of competition, resulting in a race to the bottom. A few people may make a lot of money, but for most, the money won't be enough to make ends meet in the developed world. The marketplace will become like Mechanical Turk or Fiverr, primarily people from developing countries selling items to players from developed countries for poverty wages.

Overall, cryptocurrencies may or may not be a net boon to the developing world. They have the potential to provide banking and credit to those who otherwise don't have access to those services, but even if they succeed in doing so, I'm not qualified to speculate on what impacts that will have. What is clear, however, is that cryptocurrencies have already begun to change the world, similar to how file sharing changed the music industry, and that's where we get back to Lain.

Let's All Learn to Live With Lain

Serial Experiments Lain is complex and multifaceted, and this is not a thorough review or exploration of all its themes. Rather, I'd like to focus on how it depicts the reality of the physical world and the reality of the virtual world, and how they affect each other.

In Lain there are characters who exist entirely in the virtual world, but project themselves into the physical world. Some simply send messages to the physical world through the Wired, Lain's equivalent of the internet, while others appear as people in the physical world. Near the beginning of the series, it appears that the two worlds may merge, the differences between them unsubstantial, but by the end, as people come to better understand the Wired and its limitations, they learn that the worlds are separate. You may visit the Wired, but you live in the physical world, or vice-versa. Despite this, the worlds are mirrors of each other, distorted through their respective mediums. The physical world created the Wired, and updates it as needed, but the Wired also changes the physical world. This is represented by a character who was created in the Wired projecting themselves into the physical world and changing it through their actions.

We have seen the same thing happen in the last few years. Q, a character created on the internet, helped to accomplish what the Soviet Union could only dream of at the height of its power: destabilize US politics to the point that the Capital was invaded by rioters. Whether or not you believe in the things Q says, you have to admit that they are just a username and a tripcode. Even if you think they are a real person or persons, they have demonstrated that someone could do the same thing with a completely fictional character, and the internet is what enabled it.

So beyond all of the arguments around technical feasibility, environmental impacts, censorship, and other issues brought up by crypto, we should be asking ourselves: How will the systems we are creating project themselves back into the physical world? What is our ideal world, and how can we create digital systems that will get us closer to it?

Digital scarcity is the core of both Web3 and Facebook's Metaverse, and I fear that they will affect the world in ways that exacerbate the problems with physical scarcity. In the physical world, we can't escape scarcity. There's only so much land, shelter, food, and natural resources to go around. It creates competition, it causes violence, and it needs an economy to manage it all, and the conflicts that arise from all this spill over into our virtual spaces. Scarcity in the digital world, no matter how carefully planned, will end up in the same way. Competition and disagreements over digital goods will spill over into the physical world. It will result in new resentments between groups of people. It will cause violence. Even if the conflicts are smaller than conflicts over physical resources, they still make the world a worse place, and they create a reinforcing cycle of scarcity and competition.

That is not to say that the current Web 2.0 is ideal. It sucks that artists struggle to make a living, but crypto is not a long-term solution to that problem. Yes, some artists will make a lot of money, just as they did before crypto, but the core problem is that art has limited economic utility, and there are far more artists than the market requires, driving supply up. If NFTs become truly mainstream, the same supply and demand issues will drive the price of most artists' work down to pennies. If we want to change things for artists for the better, we can't look to capitalism to provide the solution, because it will never provide for them beyond their economic value.

Crypto, at its core, is capitalist. It is an attempt to acquire physical wealth by altering how we interact on the internet. If you fear that we are in the throes of late capitalism, you should be against it. If you think that socialism can never work, it should still be obvious that capitalism is what allowed a few large companies to grow and concentrate power. Any technology that increases capitalism, even one that goes out of its way to enforce decentralization and permissionlessness, will only increase corporate power.

Personally, I would prefer to work towards the kind of post-scarcity world depicted in Star Trek. It may be nothing more than an unachievable fantasy, but I know we can do better than we're doing now. We should be building digital systems that work towards a better world. Crypto will only pull us in the wrong direction.