By Nick Coronges, the Chief Technology Officer for R/GA, a global design and innovation consultancy that provides Web 3.0 strategic, creative and technology services to clients.
As the ecosystem around blockchain tech explodes into finance, commerce and culture – what’s now being touted as “Web 3.0” – it will become critical that financial organizations prepare and build competencies or risk falling behind. While it’s likely that many of the current platforms and trends emerging will be swept away with the ebbs and flows of speculators, over the long term we’ll see a shift towards new ownership models enabled by Web 3.0, and that’s going to require an acknowledgement and adoption of “crypto” as a basic building block of the future internet. In 2022, Web 3.0 literacy will be a top priority for companies operating in digital, and will require enterprise investment and cooperation between the CMO, CTO and CFO.
What is Web 3.0?
Web 3.0 is enabled by crypto networks, similar in principle to Bitcoin, where participants in these ecosystems share in ownership, through native currencies and NFTs. Non-fungible tokens like cryptocurrencies confer ownership to users, but rather than representing interchangeable, or fungible, money, they represent unique assets, for example specific plots of digital land, or digital content. NFTs were a big part of the hype cycle in 2021, with NFT marketplaces like OpenSea exploding in popularity – and equally beset with volatility and high profile scams.
The term Web 3.0 is best understood as a response to Web 2.0, where the big tech companies typically provide services on a subscription basis or rely on advertising. The data and network are owned by the corporate entity, and users, no matter how much value they may create for the network through their participation, own nothing and do not capture the upside of growing the network.
In contrast, Web 3.0 networks tout the realignment of incentives where users, builders, investors and other participants all benefit from the expansion and utility of these networks as owners of equity in the networks – the native cryptocurrencies and NFTs. In theory, the value created by these networks is distributed fairly based on the merit of their contributions, and codified in “smart contracts” that are built into the blockchains that underlie them. In practice, like their Web 2.0 counterparts, much of the actual equity is concentrated in a few, often the early investors. However the difference is that with Web 3.0 projects, because they operate on the blockchain, and many are built on open-source code, the distribution of coins and reward mechanics are transparent.
A simple example of this would be the comparison between Web 3.0 platform Filecoin and Dropbox, its Web 2.0 predecessor, both data storage platforms.
|Business model||Subscription-based||Web 3.0-based|
|How it works||Dropbox provides services and storage to users for a subscription fee||Filecoin allows users to share storage space on their computers and receive Filecoin in exchange.|
|Funding model||Subscription based revenue grows value of stock, giving equity owners incentive to own||Participants use and serve the network to receive Filecoin. Filecoin increases in value as the value of the network increases. Investors may buy filecoin based on expected growth of the network|
|IP||Proprietary, closed source platform||Open source, public platform (can easily be forked and replicated)|
The two platforms may provide very similar services, but operate in fundamentally different ways. Where Dropbox tries to lock users in through subscriptions, Filecoin incentivizes expansion of the network by distributing its own native coin ($FIL) where users, investors, and infrastructure providers all share “skin in the game”.
More than just a goldrush for founders and developers
The appeal of Web 3.0 economics has created a talent shift as founders, developers, and investors move en masse into the space. Part of this is driven by the opportunity for quick financial gains – as crypto-based speculative bubbles continue to rise in succession. After bitcoin itself, the success of Ethereum in 2015 supercharged the ecosystem, as a kind of programmable version of the bitcoin network. This in turn ushered in a wave of ICOs (Initial coin offerings) allowing projects to quickly raise cash by issuing bespoke native coins, resulting in an explosion of projects, like Filecoin. From there, we’ve seen the DeFI ecosystem expand, and most recently the explosion of crypto into mainstream culture with NFTs. Each of these have been tremendously fruitful for those early to get in, but also notoriously volatile with many risk off events wiping whole projects off the map.
But the Web 3.0 talent ecosystem has proven to be extremely resilient. “The people who are deep into crypto, and especially building things,” said Vitalik Butarin the founder of Ethereum recently, “a lot of them welcome a bear market”. For many the speculators are a distraction from the work that has to be done to build the next version of the internet.
What does this mean for mainstream organizations?
In order to participate in these ecosystems, companies need to understand and upskill staff in Web 3.0 systems. For many people, 2022 will be the first year they install and use a crypto wallet, not unlike the late 1990s and early ecommerce payments adoption. There will be a great deal of push back from corporate IT and legal as companies enter the space, but it’s essential that these teams engage and help provide the due diligence and risk management required.
For example, companies wanting to purchase land or create content in emerging Web 3.0 platforms will need a corporate-managed crypto wallet, they’ll need to convert fiat currency for crypto, and between different cryptocurrencies. If companies own or sell NFTs they will need to understand the differences between storing assets on centralized servers or decentralized systems (like Filecoin mentioned above), and the licensing frameworks for providing products that are backed by digital assets.
For Ethereum and many other networks, “gas fees” are required, which pay for the service of using the blockchain, ultimately distributed to the participants who are providing infrastructure. This may be required to mint an NFT, or to convert from one type of asset to another. For more sophisticated companies making a bigger plunge, crypto may be required to make investments, for example, buying land in virtual spaces like Decentraland or Sandbox. This may have seemed farfetched in 2021, but recently many mainstream companies have made the plunge like JPMorgan, with its Onyx space.
For many financial services companies, simply entering into the space, and building in-house literacy will be a big step, and sufficient to avoid being left behind as the ecosystem matures. But not taking action will be a far riskier bet in 2022.