Cutting through the hype.

• Position: SPECIAL SECTION: WEB3 AND BLOCKCHAIN

Like many new technologies, Web3 has generated a lot of excitement--but it's difficult to tell how much of that excitement is justified. Following are a few more points to further demystify Web3 technology, help you evaluate potential use cases and pose questions that can help local officials assess other potential use cases.

Governments are not tech companies, so they don't face the same incentives.

Tech companies often face a phenomenon known as "first mover" advantage--meaning the first company to offer a particular service or product will dominate the market. Amazon.com is a leading example of a firm that was one of the first in its category (online retail) and has gone on to dominate that category. Information technologies have features that tend to result in monopolistic or oligopolistic markets. "Metcalfe's Law" describes the most important of these features. The implication is that there are often very high stakes for taking a leading position in a market. Local governments are not subject to these same incentives because no local government will "dominate" Web3 revenue, just like local governments in Silicon Valley don't "dominate" the benefits that have accrued to local governments from Web 2.0. (These local governments have enjoyed more property and sales taxes from economic activity of the firms within their boundaries, but this pales in comparison with the total revenue generated by online sales taxes generally, for example.)

There is a second-mover advantage.

Second mover advantage is when a firm benefits by learning from the mistakes of the first mover and offering a product or service that capitalizes on those mistakes. This concept is more akin to the situation local governments are in. It will be a better use of the government's...