The bane of Silicon Valley: How Web3 solves the geographical siloes of innovation 

Facebook, Google and Apple are today’s titans of the tech world. They have achieved their successes in part by leveraging their geographic location in the heart of Silicon Valley. But what if there was a way to decentralize the web so that anyone, anywhere, could contribute to its growth and development?

Silicon Valley has become the single most dominant force in the tech industry. But this dominance has come at a cost. The Valley has become a victim of its own success, as the high cost of living and doing business has priced out many would-be entrepreneurs and innovators.

In this article, we will take a look at some notable Web 3.0 projects that have achieved Silicon Valley-type scale without having to conform to the geographical restrictions of the Valley. We will also explore how Web3 could help solve some of the problems that have arisen as a result of the concentration of power in Silicon Valley.

What makes Silicon Valley work?

Since the early days of the internet, Silicon Valley has been the epicenter of tech innovation. There are a number of factors that have contributed to this. One is the concentration of wealth in the Valley. This has created a large pool of capital that can be invested in new and innovative ideas.

Another is the presence of major research institutions like Stanford University and University of California, Berkeley. These schools have produced some of the most talented engineers and computer scientists in the world.

But perhaps the most important factor is the culture of risk-taking that pervades Silicon Valley. This culture has spawned some of the most iconic companies in history, from Apple to Google to Facebook.

However, as Silicon Valley has become more successful, it has also become less accessible to the outside world. It is increasingly difficult for startups and tech companies to get a footing.

How Web3 sets a precedent that makes the Silicon Valley model obsolete

To better understand how Web 3.0 solves the geographical siloes of innovation, we have to look at all of the factors that make a Web3 project work, and why these factors may not be efficient in Silicon Valley.

Factor 1: A democratized funding pipeline

Web 3.0 startups are funded through crowdfunding instruments like Initial Coin Offerings (ICOs), Initial Dex Offerings (IDOs) and Security Token Offerings (STOs), which are independent of traditional funding and can raise capital from all over the world. This gives them a distinct advantage over traditional startups, which are largely reliant on venture capital (VC) funding. By contrast, one of the hallmarks of Silicon Valley is its hub of VC funds — but to profit from these, companies have often had a better chance by being located on site. 

Another reason why Web 3.0 startups don’t need to be located in close proximity to other companies is that they can benefit from the network effect. This is the phenomenon whereby a product or service becomes more valuable as more people use it.

Aren’t these advantages also available to traditional companies? Yes — but to a vastly lesser extent. This is because traditional companies are more likely to be funded by VCs, which means that they are less likely to benefit from the global network of investors that ICOs (and company) can provide.

One can argue that if CZ (Changpeng Zhao), the founder of Binance, had gone to the San Francisco Bay area to raise money, the success of the exchange might not have been as great. This is because he would have been competing against much more established companies for a limited amount of VC funding.

Factor 2: A crypto-friendly regulatory environment

IFTX founder Sam Bankman-Fried, one of the most successful people in the crypto space, has the makings of a successful Silicon Valley startup founder — he is an extremely intelligent Massachusetts Institute of Technology (MIT) graduate and a former quantitative trader at Jane Street Capital, a successful NYC hedge fund. 

However, instead of going to the Valley and starting his company there, he chose to base his business in Hong Kong. The reason for this is quite simple: The regulatory environment in Hong Kong is much more crypto-friendly than it is in the United States. And this will only become more the case as time goes on. 

The United States has been very slow to adapt to the rise of cryptocurrencies and blockchain technology. The U.S. Securities and Exchange Commission (SEC) has only recently begun to come around to the idea of approving crypto-based exchange traded products (ETFs), and has only recently given the green light to a Bitcoin ETF. 

Meanwhile, other countries like Canada and Switzerland have been much more welcoming of crypto innovation. 

And it’s not just the SEC that has been slow to adapt — the rest of the US regulatory environment is also not particularly friendly towards crypto businesses. In contrast, Hong Kong has a much more business-friendly environment, and its regulators are open to working with crypto companies. 

This regulatory arbitrage is one of the main reasons why so many crypto businesses are choosing to set up shop in Hong Kong, and it’s a trend that will only continue in the future. 

Factor 3: A flatter hierarchy 

Web 3.0 startups tend to have flatter hierarchies than traditional companies. This is because they are often built around the idea of decentralization, which means that there is no need for a centralized authority figure.

In a traditional company, the CEO is the one that makes all of the decisions. But in a decentralized organization, the power is distributed among all of the members. This leads to a more horizontal structure, which is often more conducive to innovation.

One of the best examples of a decentralized organization is the Ethereum Foundation. The non-profit is responsible for supporting Ethereum, but it does not have a centralized leadership team. Instead, it is run by a group of core developers who are responsible for making decisions about the direction of the project.

The advantage of this decentralized model is that it allows for a much more agile decision-making process. This is because there is no need to wait for a centralized authority figure to make a decision — the members of the organization can simply come to a consensus and move forward.

So what does this have to do with not being in Silicon Valley? The answer is that, if you’re not in Silicon Valley, you’re not competing with the traditional power structures. This means that you have a much better chance of being successful because you’re not up against the same level of competition.

Take for example, Austin, Texas. The city is not known for being a hub of technology innovation. However, it has been able to attract a number of Web 3.0 startups because it offers a much more favorable environment for innovation.

Unlocking the location-independent nature of the internet

The internet has made it possible for people to work from anywhere in the world. And this is a trend that will only accelerate. As more and more people are able to work remotely, the traditional idea of a 9-to-5 job is becoming increasingly obsolete. This is especially true for Web 3.0 startups, which often don’t even have a physical office. 

The internet at its core is decentralized and location-independent in nature, but that was not realized because of the Silicon Valley model. The power structures were too centralized and the funding was too limited.

The good news is that, with Web 3.0, we are finally starting to unlock the true potential of the internet. By decentralizing the power structures and opening up the funding channels, we are creating a more level playing field for innovation. And this will benefit us all in the long run.

Next up in this series: How important is Know Your Client (KYC) for Web 3.0 startups? Does it breach the fundamental ideas of privacy and data sovereignty?

Daniel Saito is CEO and cofounder of StrongNode.