In 2022, many cryptocurrency skeptics gleefully claimed that the collapse of FTX was like the Lehman Brothers event for the industry. However, nothing could be further from the truth. While the details that led to the collapse continue to emerge through court proceedings, it seems clear that this disaster was not caused by cryptocurrencies.
If anything, the real culprits behind the bankruptcy of this centralized exchange were traditional business malpractices, including fraud, commingling of funds, and investor deception. This also serves as a reminder of the fundamental value proposition of decentralized finance, and the emerging new ecosystem - Web3.
In the early days of the internet, enthusiasts had a consensus: this would be a revolutionary new technology. The internet was destined to change the way we communicate, work, and even play. This utopian vision has largely been realized. However, as our dependence on the web has increased, we have also grown accustomed to some of its less-than-ideal aspects, from data breaches to election interference - the internet is not the safe haven we imagined. But what if there was a way to start over? What if we could build a secure, decentralized, and democratized new version of the internet, where people could monetize their own data, content, and even the time they spend on the internet, rather than being owned by a few tech monopolists?
This is the daydream of Web3, but what does it take to make it a reality?
Global macroeconomic trends are converging on an inflection point. Or to put it another way, some things need to be done. Currently, over-leveraged debt, rapidly rising inflation, insecure supply chains, and the concentration of data and economic value generated by global internet users are not sustainable environments.
The world certainly needs a "Great Reset", but one that gives power back to the common citizen. Web3 is about creating new sources of value, and alternative ways of generating and storing that value.
Simply put, Web3 is the third generation of the internet, built on the premise that the internet's defining characteristics should be a decentralized network of computers, rather than a centralized one. This means fewer single points of failure, and fewer central authorities and intermediaries controlling the flow of information or economic value.
This should not be conflated with the metaverse, which refers to a parallel virtual reality-based world. Web3 focuses on blockchain technology and the new infrastructure built upon it, including digital identities, smart contracts, and decentralized applications (dApps).
Web 2.0 was centralized and non-interoperable, while Web3.0 is the opposite - decentralized and interoperable. The main goal of Web3 is to establish a new ownership system, and even lay the foundation for a new financial system. This can be achieved through Non-Fungible Tokens (NFTs), which can represent products or services, bought and sold using cryptocurrencies that make up the Web3 infrastructure.
According to data from Grand View Research, the global Web3.0 blockchain market size was $1.36 billion in 2021, and is expected to expand at a compound annual growth rate (CAGR) of 44.9% from 2022 to 2030, representing the potential for revenue in the space to reach $33.53 billion by the end of the decade.
So what is the problem with Web2, or in other words, what will Web3 solve? Jaron Lanier, in his book "Who Owns the Future?", coined a term called "siren servers" to describe the centralized data collection that characterizes much of the Web2 structure.
Lanier argues that the problem of ordinary internet users being deprived of their rightful share of the online economy is becoming increasingly severe. By persuading users to provide their valuable information in exchange for free services, companies can accumulate vast amounts of data at almost no cost. These companies, the "siren servers", are akin to Ulysses' sirens, in that they do not pay each participant and data contributor, but concentrate wealth in the hands of the few who control the data centers.
These data centers not only extract value from individuals, but also concentrate control over previously fiercely competitive industries (such as advertising) in the hands of one or two companies, including Meta (formerly Facebook) and Google, damaging key democratic search engines that rely on advertising revenue, such as free media.
The potential applications of Web3 thinking go far beyond simply addressing the monopoly problems of Web2. Blockchain and digital assets are driving the establishment of community-centric economic incentive mechanisms. This represents a significant shift from past technological progress, as developers and content providers will be able to directly benefit from the consumption of their products. In the world of Web3, stakeholders will also be more directly involved in the governance of the underlying products and networks.
Over time, this integration could even extend to traditional industries, with the use of blockchain technology enabling partial ownership of previously illiquid assets, such as real estate.
However, this revolution will not happen overnight. People may live in a hybrid world of Web2 and Web3 for some time. Many companies that currently only have a website or app, residing in the Web2 world, will gradually begin to migrate their digital identities to Web3.
By definition, cryptocurrency exchanges will be early adopters of Web3 technology. Given that the assets traded on exchanges are inherently Web3 tokens, exchanges can even be seen as a gateway for Web2 players to enter the Web3 space.
However, we cannot be complacent and assume that Web3 will only bring solutions and not its own problems. As Web3 will drive a completely new economic incentive model, it is bound to raise new ethical issues and moral hazards.
The lack of clear oversight or regulation of Web3 will inevitably raise concerns about privacy and data breaches, copyright infringement of NFTs, ICO scams, and theft.
New problems always arise with the waves of technological progress, but this should not stop us from exploring how to push development to new heights. The decentralized world of Web3 is coming our way.
