Why Web3 matters
Let's build a better internet
What is the “next big thing” in computing? The next wave upon which generations of technology companies will surf? For more than a decade, mobile and cloud have been the two dominant drivers underpinning the rise of today’s technology giants from Salesforce to Shopify and Snapchat to Spotify.
With 13 generations of iPhones behind us and Moore’s Law starting to break down, venture capitalists have spent recent years scratching their heads about what comes next. They have placed bets on technologies from quantum computing to synthetic biology to virtual reality to generative AI. All feel promising; none seem to have the tsunamic quality of their predecessors.
But what if the next big wave was actually ... the internet? Just a new and better version of it.
The early internet (1980s-2000s) was built on top of a series of open protocols like HTTP (websites), SMTP (email), IRC (chat) and FTP (file transfer). It was largely decentralised: users could trust that these protocols wouldn’t change and could build sites and services on top of them with no intermediation by a third party. However, building required technical skills and it was hard to attract an audience. Web1 was niche.
The internet as we know it today, Web2.0 (2000s-2020s), solved these problems. Centralised platforms like Facebook and Google allowed non-technical users to create pages, share photos and text, search, message friends and colleagues, share files and more. They wrapped the Web1.0 protocols in delightful user interfaces, trading off decentralisation and ownership for utility and distribution.
Riding the waves of mobile adoption and cloud delivery, these companies drove an astonishing take up of internet services and trillions of dollars of value creation. Billions of people across the globe got access to incredible technology, usually “for free”.
However, we’ve seen recently that Web2.0 is not all sunshine and roses, particularly for innovators and creators. The vast majority of communication and commerce now takes place on closed platforms like Facebook, Google and Amazon. Huge value has accrued to a small few tech giants who, by extracting and selling their users’ data, have become misaligned with their customer bases. These companies have become famous for changing the rules for their users, sometimes censoring them, and not allowing other companies to build on their infrastructure or access their data. Ask any YouTuber or Instagrammer how easy it is to port their audience off platform. Or talk to Epic Games about what it’s like relying on Apple’s App Store. The risks of being beholden to, or trying to build and innovate on top of someone else’s platform are clear.
Today, the best entrepreneurs have learnt not to rely (and therefore not to build) on platforms owned by big centralised technology companies. Instead, they are flocking to crypto and building the third iteration of the internet, Web3. Web3 takes the internet back to its decentralised routes; it is a web of open protocols and composable applications owned by their builders and users.
Web3 is built on open, decentralised blockchains like Ethereum and Solana. It runs on the currency of tokens - digitally native assets which confer property rights - the ability to “own” a piece of the new internet.
Tokens can be fungible or non-fungible. If you buy a fungible token like ETH, you own a stake in the ethereum protocol, an open blockchain-based computing platform upon which many applications have been built in the last few years. Non-fungible tokens (NFTs) unlock another new paradigm: digital scarcity. They sit on top of blockchains and enable digital property ownership of a specific virtual good, like collectible artworks or items within computer games. Web3 provides fertile ground for experimentation and innovation - which we are now seeing across NFTs, DAOs, decentralised finance (DeFi), play-to-earn gaming and more.
Investors are intrigued by Web3 because it holds fascinating promise for community-building and growth, done in a totally new way. Imagine trying to start a Web2 network product like Twitter or Instagram today. Being an early user is a very lonely experience - like shouting into the wind. Successful Web2 startups spend hundreds of millions of dollars (usually venture capital) on marketing and advertising to acquire and retain users.
By contrast in Web3, early adopters can receive an economic benefit from their involvement and advocacy. For instance, the 2 million daily active players of online fantasy game Axie Infinity earn SLP, its in-game token, just by playing. Some stores in the Philippines accept SLP in preference to the Peso! Similarly, a crypto derivatives exchange called dydx retroactively gave 40% of its tokens to users in August as a “thank you” for their historical trading volumes. Many received the equivalent of $50,000 merely for having used its service!
Rewarding users for their activity and advocacy via tokenised ownership is a powerful example of why I believe decentralised Web3 projects will disrupt centralised Web2 companies. Tokens align builders and users to work together toward common goals - thereby solving the ubiquitous cold start problem. With growth, increased usage and new users onboarded, a token should appreciate in value - completing the flywheel. Contrast this with, say, Facebook whose users share in zero economic upside from its success.
Centralised Web2 companies have built incredible products, driven the internet to every corner of the globe, and reaped monstrous financial rewards. The promise of Web3 is to democratise the rewards of the internet to the people who drive the value: us, the end users.