The Promise of Web3

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Change, it has been one of the constants of the human experience.  In modern times humanity has experienced three major economic and technological revolutions—the first industrial revolution in the 1780s (steam power, mechanical production), the second in the 1870s (electricity, mass production, division of labor), and the third between the 1970s and 2000 (personal computers and the internet). It now seems highly likely we are at the frontier of the fourth revolution, that of cyber-physical systems, artificial intelligence, and the idea of a new version of the internet collectively referred to as Web3.

Web3 is more than an enhanced version of the internet, however. It represents not just a technological revolution, but a social and cultural shift towards what promises to be a more equitable and decentralized digital world.  Web3 has its share of hurdles, as well as a legion of doubters and haters, but I have been immersing myself in this world for nearly two years and I find good reason to be inspired and optimistic. Let me tell you why…

Reasons For Web3 Optimism

Empowerment and Ownership

One of the most compelling aspects of web3 is the empowerment it brings to users.  In our current web3 paradigm, a handful of platforms control vast amounts of data that allows them to wield incredible influence over what we see, do, and share online. Web3 hopes to turn this model on its head by giving users control over their data and their creations.  Through the use of non-fungible tokens (NFTs) and decentralized autonomous organizations (DAOs) new forms governance, participation, and compensation become possible. 

For example, if a content creator (writer, musician, etc.) were to distribute their work as a smart contract laden NFT, they could track digital ownership of their work product, its reuse (say as a training piece for an AI bot) and be compensated for each reuse or resale.  An artist who sells an early piece as an NFT before they have become well-known can receive future royalty payments each time subsequent owners sell that NFT, allowing the artist to capture otherwise lost value as their reputation grows. For creators that’s a big deal!

Web3 Will Be a Catalyst for Innovation 

Web3 promises to be a stimulator of innovation. This has already been evidenced in many different fields, but particularly in the world of finance.  Decentralized finance (DeFi) platforms are changing the traditional financial system by creating more accessible and equitable financial systems.  Beyond allowing users to encrypt and protect their sensitive data, some DeFi platforms allow users to engage in low-risk peer-to-peer lending at interest rates that are far better than what they would receive from a traditional bank.  Other platforms provide for automated insurance claims with a more secure and efficient workflow, enhanced data analysis for risk assessment and reduction, or even the ability to engage in new forms of fundraising for businesses or social causes that would otherwise be left with few options.

Web3 Will Change How Business Is Done

Another exciting aspect of web3 is how it can be used to change the way business operates.  Have you been to an American mall recently?  Stores that use to seem like mall staples are increasingly disappearing, but the potential of the metaverse or already developed online worlds are providing opportunities for reaching new markets in creative ways.  Take Forever 21 for example, which has created the immersive Forever 21 Shop City within the Roblox gaming platform.

In Shop City you can create and manage your own custom store, create and share MetaMerch, or connect and socialize with friends and other creators.  This is a great way to expand your brand to new audiences and build brand loyalty around a social experience.  Some of the items created as MetaMerch have actually been featured in physical stores as physical products, but I can also easily imagine this model also being used in a way where user avatars are making purchases for the user humans who could try things on for fit or coordinate a whole wardrobe from the comfort of their home.  Louis Vuitton, Gucci, and Nike are just a few of the other brands that have created immersive brand experiences.

Challenges of Web3

I am a web3 optimist and have no doubts that most of whatever you imagine web3 could become  may well be reality in the next 5-10 years, but I am not blind to web3’s hurdles either. Here are some of the bigger ones.

Interoperability

• One large problem for mass web3 use is that of interoperability.  Many blockchains are unable to communicate and share data with platforms developed on other blockchains. This is particularly a problem for the advancement of the metaverse.  If I spend money on items for my avatar (or other purpose) and want to operate freely between different locations or platforms within the metaverse I likely want a consistent experience.  If Platform A doesn’t recognize or allow things I acquired in Platform B I am going to be frustrated and limited in my experience.  This problem has led to siloed experiences.

• Although this is a major problem, luckily there is promise for solutions in the very near future.  The creation of token bridges is allowing users to move assets from one blockchain to another and what are known as cross chain bridges are doing the same for data, other assets, and messages. These solutions are not fail safe yet, but the technology is rapidly improving. 

Scalability & Critical Mass

• The aspect of web3 that many people find most intriguing is the creation of the metaverse.  As noted above, interoperability is a hurdle. Another challenge is reaching mass ownership of the hardware technology required for the immersive experience. Virtual reality and augmented reality headsets are on the market, but they have yet to become a common purchase. 

• The recent release of Vision Pro, Apple’s MR offering, has helped renew awareness, but the $3,499 price tag keeps them out of reach for most people.  Meta (Facebook) offers the Quest series starting around $500 to as much as $1,500 for the Meta Quest Pro. At some point headset prices will drop to mass market affordability and the amount of content they offer should increase to entice those masses to buy. How long this shift will take is anybody’s guess.

Regulatory Confusion

• The web3 regulatory environment is something that will be covered by Hashed Out in much greater depth in a future issue.  Web3 technology has produced an abundance of regulatory questions. Are NFTs something that the S.E.C. needs to have jurisdiction over?  What are the rules or reporting requirements for DeFi transactions like peer-to-peer lending?  The answers to these and many more questions are unclear and the national and sub-national regulatory frameworks are quickly becoming antiquated and need to be revamped to address the needs of a future that has already arrived.

The Path Forward

Despite these challenges, I believe the promise of web3 offers a compelling vision for the future of the internet—a future where digital spaces are more open, transparent, and user-centric.  Achieving this vision will require cross-sector collaboration to forge the innovative solutions that are needed to bridge the gaps and breech the barriers web3 still faces.  This in itself feels like a cloud made for a silver lining as we all have the ability to solve problems and there are rewards to be reaped for those who rise to the challenge.

As we prepare for and explore the potential of web3, we should also remember lessons learned from the early days of the internet and web2.  In each iteration there was doubt about the utility of the new technology and of our ability to develop it. Yet we did, and we did so quicker than what was thought possible.  Once again we stand at the threshold with the opportunity to create an internet that empowers individuals, fosters greater innovation, and champions open and inclusive entrepreneurship.

The journey towards a web3 future has just begun and success will depend on the participation and collaboration of us all.  So I invite you to join me, and the many others already making the journey, in dreaming and creating what web3 can and will become.

Other Articles In This Issue:

• Web3 101: Understanding the Basics

• Case Study: Ethereum

• Hashed Out Main Home Page

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