Bill Gates' Greater-Fool-Theory: Limited to NFTS or all of Web3?

by Malik Datardina, CPA, CA, CISA, GRC Strategist, Auvenir

In case you missed it, we previously explored the top 5 things CPAs need to know about crypto-collapse and beyond, and we also weighed in on the hype associated with Non-Fungible Tokens (“NFTs”) that is hard to avoid. But what is the utility behind crypto-assets, crypto-currencies, and Web3?


Captured on camera, Bill Gates has caused a stir about NFTs:


“Speaking at a TechCrunch talk on climate change Tuesday, the billionaire Microsoft co-founder described the phenomenon as something that’s “100% based on greater fool theory,” referring to the idea that overvalued assets will go up in price when enough investors are willing to pay more for them… Gates joked that “expensive digital images of monkeys” would “improve the world immensely,” referring to the much-hyped Bored Ape Yacht Club NFT collection.”

Is his observation limited to NFTs or can they be applied more broadly to Web3?


Before we get to that, let’s explore what is exactly meant by “Web3”.


What is Web3?

Deloitte, for its part, sees the Web3 as part of a larger concept of the “semantic web”:


“Many people identify Web 3.0 with the Semantic Web, which centers on the capability of machines to read and interact with content in a manner more akin to humans. Recently, definitions of Web 3.0 have begun to include distributed ledger technologies, such as blockchain, focusing on their ability to authenticate and decentralize information. Theoretically, this could remove the power of platform owners over individual users.”


Gartner links the origins of the term to “Gavin Wood, co-founder of Ethereum, who argues that centralization is not socially tenable long-term. Also called Web 3 and Web 3.0, Web3 eliminates the need for, and functions of, Web 2.0 central authorities and “gatekeepers,” such as major search engines and social media platforms.”


Ethereum, while admitting “it's challenging to provide a rigid definition of what Web3”, lists 4 “core guiding principles, including decentralization, permissionless, use native payments (i.e., cryptocurrencies instead of “outdated infrastructure of banks and payment processors”), and trustless (e.g. relies on miners instead of “trusted third-parties”).


What do Tim O’Reilly and Gartner have to say about this?

Tim O’Reilly coined the term “Web 2.0” back in 2005. According to his seminal post on the topic, he introduces the jump from Web 1.0 to Web 2.0 by looking at how Google (which he believes is “the standard bearer for Web 2.0”) compares to Netscape. Specifically, he notes that “the value of the software is proportional to the scale and dynamism of the data it helps to manage.”. He also touches on several other concepts, including the ability to harness the wisdom of the crowdscloud computing, as well as the long tail


The original post is worth the read because it gives a benchmark of sorts as to what “good looks like” when claiming the web has gone through a version upgrade.


In terms of what O’Reilly thinks about Web3, it can be found here. He summarizes his primary challenge in a single sentence:


“None of the examples in the article focus on the utility of what is being created, just the possibility that they will make their investors and creators rich.”


The article he is referring to was this one published by NY Time in the fall of 2021. The article mentions social media, collectibles, and gaming.


And what about Gartner’s take?


Gartner in a recent blog post unveiling its Hype Cycle for Blockchain and Web3, 2002, made an important observation:


“In the meantime, other than cryptocurrency trading, we still have not seen killer use cases yet. They need to leapfrog over current applications in terms of making our lives better.”


Interestingly, O’Reilly, Gartner and Gates end up in the same place. Compared to the Railway, Radio, and Internet Bubbles of the past, there is no infrastructure being built here to move people/goods, broadcast programming through the air, or enable the routing of packets of information in a dynamic way that enables us to work from home during a pandemic.


In contrast, there is literally nothing when it comes to crypto. With bitcoin, you do not actually have a tangible thing to hold on to; there are no digital coins or pieces of code to point to. Instead, what you are  holding is a mathematical calculation of your “ins” and “outs” (see here for my post/process flow of bitcoin).  Sure, that’s part of the security – but from an economic perspective, that is quite a difficult pill to swallow. Add on top of that, there are no centralized intermediaries to turn to when things don’t work out with these “assets” – you have massive issues in understanding how this is different than people paying fortunes for tulip bubbles, I mean bulbs.


As noted in the previous post on NFTs, I do think that NFTs offer some type of infrastructure for the future. O’Reilly is not so sure. However, what we do agree on is there is a massive gap on the institutional side of things:


“The failure to think through and build interfaces to existing legal and commercial mechanisms is in stark contrast to previous generations of the web…The easy money to be made speculating on crypto assets seems to have distracted developers and investors from the hard work of building useful real-world services.”


O’Reilly points out that the Web 2.0 – despite the DotCom Crash – still had successful ventures that could be pointed to, such as Amazon and Yahoo that were making money, hiring people, providing services to millions of users and “had all built unique, substantial, and lasting assets in the form of data, infrastructure, and differentiated business model”.


O’Reilly’s observations are not a minor issue. For innovation to have relevance, there must be value. Recall the Motorola Iridium Satellite disaster. The company launched 15 rockets, put 66 satellites into space and spent over $5 billion, only to realize “nobody wanted a phone the size of a brick that didn’t work well indoors”.[1] The result? The company launched its service in 1998 only to go bankrupt in 1999.


The underlying blockchain technology is ingenious in terms how it resolved the double-spend problem. However, until now it seems like it is a “nail looking for a hammer” type innovation. Consequently, Web3 will remain more hype than hope until real business value can be delivered by the technology.


[1]Keeley, Larry., et al. Ten Types of Innovation the Discipline of Building Breakthroughs. 1st edition, Wiley, 2013, p 214.