The Age of Web3: Discovering the Uncharted Territories of the Internet
The past few quarters have been a rough awakening for many Web3 enthusiasts: market prices of major cryptocurrencies have declined significantly, the trading volume of non-fungible tokens (NFTs) has slowed, and, most importantly, some pioneers of the space have declared bankruptcy because of failed risk management and misuse of consumer funds.
Yet even as the debris continues to fly, the digital assets and the technologies underlying them still have the potential to transform business models across sectors.
Disrupting the status quo and creating a new digital landscape:
While the first incarnation of the web in the 1980s consisted of open protocols on which anyone could build—and from which user data was barely captured—it soon morphed into the second iteration: a more centralized model in which user data, such as identity, transaction history, and credit scores, are captured, aggregated, and often resold.
Web3, the next iteration, potentially upends that power structure with a shift back to users. Essentially, it could mark a paradigm shift in the business model for digital applications by making disintermediation a core element.
The disruptive premise of Web3 is built on three fundamentals: the blockchain that stores all data on asset ownership and the history of conducted transactions; smart contracts that represent application logic and can execute tasks independently; and digital assets that can represent anything of value and engage with smart contracts to become programmable.
DeFi (Decentralized Finance) stands out as a highlight among real world Web3 use cases as it presents prolific opportunities for improving financial inclusion. Web3 delivers a Decentralized Autonomous Organization (DAO) that is under the control of a community. It is a way of providing voting and ownership rights to its members by offering them governance tokens.
Managing privacy and data will become easier with the cybersecurity programs of Web3. Metaverse, blockchain-based games, 3D enabled workspaces, crypto platforms, virtual real estate, and decentralized social media apps are some use cases currently being explored.
Current market landscape:
Tech giants such as Amazon, Google, Microsoft, Meta, and Apple are big investors in the Web3 market as the change of ownership in data would force major companies to implement radical changes in their business models – firms will no longer be able to grow by profiting from users’ data. The market also remains highly relevant for the private equity players as it will have important implications on how funds invest, underwrite risk, and raise new capital. Investors have poured approximately $94bn into Web3 companies in recent years, most of it since 2021.
As more attention turns to innovative blockchain-driven technologies, companies are being forced to reckon with the elephant in the room: energy consumption. Amidst the push for greater ESG by customers, investors, and government regulators alike, companies can not shill NFTs and other tokenized assets that seemingly contradict their public pledges to sustainability. Brands eager to create or connect with communities in Web3 should evaluate, select, and champion carbon-neutral blockchains to avoid technological dead ends.
Regulatory oversight, user experience, and the underlying technology will all need to further mature for mainstream adoption to occur. For all the technical complexity and unanswered questions, Web3 remains an important internet trend to watch, and executives across sectors may want to keep it on their radar, if only because of the potential for rapid disruption that it represents.