We are now reaching the point in the hype cycle where I am being asked my opinion of Web3 at least three times every day, whether in a virtual event, or when catching up with old friends.

In the interest of efficiency, I’m laying out some of my current thinking. You may find it useful. Or you may think I’m a dinosaur with a right-click mentality. It’s your call.

My four word summary is simple: Be skeptical, not dismissive.

Be skeptical by asking questions to help you form a reasoned understanding. You shouldn’t have to take things on faith, or based on appeals to authority. Citing Mark Cuban or Elon Musk, no matter how brilliant they are, does not actually explain anything.

If the answer to a question leads you to ask more questions, good! And if someone refuses to answer your questions, then you have another important data point.

This is very different from being dismissive, which generally takes the form of searching for evidence to support a negative point of view, and then arguing that such evidence proves that Web3 is a scam.

For example, take the straightforward and oft-repeated statement that Bitcoin will eventually be worth at least $1 million USD. That represents a market capitalization of about $20 trillion USD, or roughly the annual GDP of the United States. The total value of all the gold that has ever been mined, at today’s market price of roughly $1,800 per ounce, is about $10 trillion USD (the US government holds the world’s largest gold reserves, and owns about $500 billion USD of that amount).

Someone who was dismissive would say, “It’s absurd that Bitcoin could be worth that much as a store of value! That’s twice as much as the value of all the gold ever mined!”

Someone who was skeptical would ask, “What are the circumstances under which Bitcoin might be worth twice as much as the value of all the gold ever mined?” Then each of those assumptions could be examined and evaluated.

Trying to make the validity of Web3 a binary “Yes” or “No” is far too reductive, and not particularly useful.

Part of being skeptical and not dismissive is understanding that Web3 might be full of fools and charlatans, and yet still be valuable.

It’s tempting to conclude that any concept championed by fools and charlatans is purely a scam.

But in my experience, fools and charlatans frequently emerge whenever something new catches the attention of the world.

There were fools and charlatans when the personal computer emerged.

There were fools and charlatans when the internet emerged.

There were fools and charlatans when the smartphone emerged.

Those fools and charlatans did not mean that those technologies, and the markets they created, were a scam, even though scammers certainly took advantage of them. (And some of those scammers are now widely hailed as visionary geniuses, and their crimes largely forgotten)

Yet while being skeptical and not dismissive might sound good, how should you evaluate Web3 opportunities?

I believe that there are three different criteria to consider.

First, is there utility to the application? Does it create value for the end user? If the answer is no, then there is no point in going farther.

A variation on this which you can apply to digital assets is to ask, “Where does the demand for this asset come from?”

Simply putting something on a blockchain does not suspend the laws of economics. Prices are determined by the intersection of supply and demand. Part of the promise of blockchains is that they provide a programmatic constraint on supply (at least for that particular chain–there is nothing stopping someone from setting up a parallel or similar chain themselves). But they don’t magically create demand.

For example, consider digital goods in videogames, which are now an accepted monetization strategy. A decade or two ago, journalists loved to mock people who paid real money for digital goods. Now, it’s commonplace. But those digital goods have a source of demand–players want to use them in the game. A publisher with a crappy, unpopular game could create all the digital goods they wanted; without the ability to drive demand through the game’s popularity, those goods would be worthless.

Second, is the Web3 application clearly (and preferably 10X) better than a solution implemented with a traditional database? The fact that an application creates value does not mean it will attract users. That only occurs if the application creates more value than its competitors. If you can’t create more value than an existing application, you’re not going to get much adoption. Users care about how an application makes their life better, not its underlying technology.

Third, is the implementation feasible. One of the major markets that Web3 enthusiasts have argued is a natural for the blockchain is payments. Yet the two leading chains, Bitcoin and Ethereum, are far too slow and low capacity to compete with traditional finance. Aha, Web3 enthusiasts say, we’re going to fix that. Here’s where skepticism can play an important role. Not every technical problem is solvable. Ask how a problem will be solved, or failing that, what the most promising potential solutions are and how they can be improved. If the answer is, “We have the smartest people in the world working on it,” you might be waiting a long time–just ask fusion enthusiasts.

And yet, I’m crazy enough to believe that fusion might actually arrive, just like I’m willing to believe that Web3 could be transformative. But I’ll be skeptical until the evidence converts me to an advocate.