What's the Best Use for Crypto? Let AI Figure It Out

Web 3.0 is mostly forgotten now, but the ideas behind it will regain their relevance as bots become more common.

As with crypto, advocates for Web 3.0 have never quite been able to make a real-world use case for their technology. (REUTERS)

Remember Web 3.0? No? Allow ChatGPT to refresh your memory: Web 3.0, according to GPT-4, is “the next frontier in internet technology, characterized by decentralized, user-centric applications that prioritize data privacy and foster seamless, interconnected experiences.”

Today Web 3.0 stands as one of this era's most discredited ideas, an “innovation” that was hyped for years — until crypto prices collapsed and brought down many crypto projects with them. As with crypto, advocates for Web 3.0 have never quite been able to make a real-world use case for their technology.

And yet. There is a reason I asked GPT-4 for a definition.(1) I fully expect the ideas behind Web 3.0 to make a major comeback — as the legal and institutional framework for AI bots. It's worth thinking through how this might work.

Say you run a charity and want to create and distribute an AI bot that will teach mathematics to underprivileged schoolchildren. That's great, but the bot will encounter some obstacles. In some jurisdictions, it may need to pay licensing and registration fees. It may need to purchase add-ons for recent innovations in teaching. If it operates abroad, it may wish to upgrade its ability to translate. For a variety of reasons, it might need money.

All those transactions would be easy enough if AIs were allowed to have bank accounts. But that's unlikely anytime soon. How many banks are ready to handle this? And imagine the public outcry if there were a bank failure and the government had to bail out some bot accounts. So bots are likely to remain “unbanked” — which will push them to use crypto as their core medium of exchange.

Critics often point out that dollars are more efficient than crypto as a form of exchange. But if AI bots can't use dollars, then they will have to use crypto. Yes, some owners might give bots access to their checking accounts, while others might want to OK every bot expenditure through the dollar-based banking system. But most people, I suspect, would rather let the bots operate on their own, without all those risks and hassles — and again, that brings us back to crypto.

There are well-known arguments for why “agentic” bots are often more efficient than “tool” bots, and they are going to need money that is consistent with a reasonable degree of bot autonomy. Furthermore, possibly for liability reasons (do you want to be indicted in some foreign country because of something your bot said or did?), many of these bots won't be owned at all. That will be another force pushing the bots to operate in the crypto nexus.

At first the crypto assets will be existing ones, such as Bitcoin and Ether. But over time the bots may invent their own coins, based on principles of convenience (for the bots, of course). Presumably these bots will be good with numbers, so they might use multiple crypto assets for reasons of diversification. The bot-based crypto economy could evolve to be considerably more complex than the human-based crypto economy.

That parallel economy may be only a small percent of GDP. But it will help sustain crypto asset prices. Furthermore, if humans deal with these bots (maybe some wish to donate to your math-teaching bot?), they will need some crypto, too. So the bot-based crypto economy will bleed into the regular economy.

The plot now thickens. Once there is a bot economy based on crypto, that economy will need property rights and legal institutions, for all the reasons that human economies do. Say your teaching bot buys a translation improvement service from another bot — but it's defective. Your teaching bot will “want its money back.”

To boost trust and lower trading costs, many bots will agree in advance to arbitration services, typically to be provided by another bot. (These bots cannot just show up at the Fairfax County Courthouse and demand justice.) The final adjudicatory judgment will be rendered by an inscription on a blockchain, using smart contracts if need be, and the new property rights will have been defined.

All this, quite simply, is a paradigmatic illustration of Web 3.0.

Some bots may wish to advertise themselves, or establish core identities, and some will do this by buying symbolic goods and having their ownership of those goods established on blockchains. That too is a Web 3.0 idea. At the peak of Web 3.0 fervor, many critics considered it absurd that humans would pay millions of dollars for NFTs. Why pay all that money for little more than a blockchain-based receipt that you had spent the money? Buyers wouldn't even necessarily own any accompanying IP rights.

Laugh all you want, but the bots will do some version of this. Back to your math-instructor bot: Say it is competing with other math-teacher bots. It may wish to make a promotional website — “Here is my portfolio, come learn calculus here!” Maybe it's illustrated with some amazing Midjourney images of Isaac Newton and Leibniz. All of these steps are likely to be done with the tools of Web 3.0 or their bot-innovated offshoots.

Bot growth and bot success will depend on the price of electricity, so perhaps the bots will trade actively in an electricity futures market to hedge their positions. They will probably have to trade with both other bots and humans.

Remember the DAO, the Decentralized Autonomous Organization? I've yet to see a human-run DAO succeed at significant scale, perhaps because humans need more authority or because the DAO is just hidden human authority in another guise (e.g., one person controls 51% of the votes). The bots already have read about DAOs and their failings, and they may give them another go. In the meantime the bots will train themselves to learn how to make their DAOs work, and bot “corporations” may end up as more democratic than their human counterparts.

Some bots might find it efficient to enjoy a version of limited liability. By dealing with such a bot, either you or your bot would stipulate that you could not sue the bot for any more than a specified amount. For hiring a bot to perform more dangerous tasks, you and the bot might agree on a tougher liability standard. These “corporate laws,” if you could call them that, will embody a lot of rapid innovation and diversity of approach. Human institutions will look all the more sluggish in comparison. Over time, perhaps, we can learn from these bot experiments.

I am sure the bots can think of many other applications for Web 3.0 — especially if we train them to.

There is a broader lesson here: Don't dismiss a technological or institutional advance just because it is hard to see what it might be good for. Quantum mechanics was around for decades, and seemed like a fascinating curiosity, before it became a fundamental principle underlying modern computing. Critics attacked gaming for corrupting young people, but now the GPUs used in advanced games have helped to build better artificial intelligence, and Nvidia is close to a trillion-dollar company.

Of course, by the time all this comes to pass, we may be calling it Web 4.0. But Web 3.0 will eventually get its due.