We looked closer at how data moves around in the previous chapter.
This chapter will examine how the next Internet iteration will include a protocol for exchanging value.
Dive Into Web3
The first version of the web - sometimes now referred to as Web 1.0, was essentially an information resource: it allowed people to find information that other people had published. It is sometimes called the “read only” web.
Around 2004, Tim O’Reilly (the founder of O’Reilly Media) put together a conference called Web 2.0. He wasn’t the first to coin the term, but he certainly gets the credit for popularizing it! This new version of the web was a shift in focus from the “read only” world of early websites to a web that prioritized user-generated content over publisher-driven content. In many ways, it is best typified by the emergence of social media networks (Facebook, Insta, Tik Tok, etc.).
Web3 similarly has been talked about for a few years now (the first mention was in 2014) but has really started picking up mainstream attention in the early 2020s. But what is it? What’s different? And why is it important?
The following table from an article by Gartner, How Web 2.0 and Web3 compare, illustrates how Web3 departs from Web2.0:
Aspect of protocol | Web 2.0 | Web3 |
Trust model | Centralized services, servers and software Trust the companies behind them | Decentralized; peer-to-peer; no central authority; no single point of failure Trust is minimized - trust the decentralized protocol |
Governance | Power consolidated among digital giants | Decentralized autonomous organizations (DAOs), where governance is distributed to stakeholders (governance token holders) |
Business model | Digital giants and service providers own customer data, which is used to earn revenue | The blockchain network pays transaction validators for their work Game theory is employed to maintain transaction integrity |
Content | Dynamic, user-generated Source content can be duplicated | User-owned and uncoupled from Web 2.0 services |
User participation models | Free services in exchange for user data Payments made to intermediaries for running services and software | Users on their data and content, and can monetize it Payments made directly to blockchain transaction validators |
User interfaces | Web Social networks Mobile apps | Decentralized apps (dApps) Centralized marketplaces or services |
User authentication methods | User IDs Passwords Other authentication | Private key that unlocks access to owner's records on a blockchain; the private key can be in a self-hosted wallet or a third-party wallet |
Financial system | Centrally managed by central banks and other financial institutions and networks | Run by smart contracts (basically "if, then else" scripts) and blockchain protocols There is no centralized control and there are no intermediaries to pay |
Currency | Centrally managed, government-backed currency (e.g., currency managed by a bank or a stored-value account provider) | Cryptocurrency built into decentralized blockchain Users act as their own bank, but can delegate to a centralized exchange |
Marc Andreessen, creator of the early web browser Mosaic and now a leading venture capitalist, described “the original sin of the internet” as being the failure to build in exchange of value into the first browsers - and he cites this as the reason for all the things we hate about the internet (e.g., advertisements).
Web3 is perhaps best thought of as how to address that original sin. As investor Packy McCormick puts it, “Web3 is the internet owned by the builders and users, orchestrated with tokens.”
What Is a Blockchain?
The most frequently cited example of blockchain is cryptocurrency - particularly Bitcoin. It’s what most people think of when they hear the term. But Bitcoin is merely one realization of value from the underlying blockchain technology. So let’s dig a little deeper.
A blockchain is a decentralized, distributed database designed to be tamper-proof and chronologically consistent. As the name suggests, it consists of several “blocks” of data linked in a chronological chain.
Three central principles govern blockchain: decentralization, immutability, and consensus.
Decentralization is achieved by the fact that every participant in the blockchain holds an up-to-date copy of the whole database. This is in contrast with conventional, centralized databases that maintain a controlled, single version of the truth.
Immutability is the principle that the past cannot be changed. Once you enter a new transaction into the database, you cannot alter it. However, you can reverse it by a subsequent transaction, but you must maintain a record of that happening.
Consensus is established by rules set within the blockchain that a majority of the participants must agree to give consent to its recognition.
This creates a transparent, easily audited, commonly held distributed database offering high degrees of trust and security.
The first generation of blockchains were digital currencies - notably Bitcoin - and was built on principles first explored in the 1970s by computer scientists looking for a secure, tamper-proof way to record data.
The second generation introduced the idea of smart contracts. Based on the concept of “if this, then that”' (IFTT), a smart contract is simply a program between two parties, stored on a blockchain (such as Ethereum), that automates the execution of a predefined result when the commitments of the contract are met. For example, Jo and John agree on a contract where John will perform work for Jo, who will pay John on its completion. The payment will be automatically executed when the work is confirmed complete.
The third blockchain generation is where emergence is still happening. 😉
Let's dive deeper into Web3 and blockchain in this interview with Kary:
Get Familiar With NFTs
NFTs (short for non-fungible tokens) have been created, traded, and argued about extensively in the media in the 2020s. And, of course, they run on blockchains.
Non-fungible means something that is unique and that cannot be changed. So in this context, it is a tradable statement of authenticity recorded on a blockchain, like a certificate or a token. It instills value in a digital asset that one might consider something that somebody can easily and accurately copy.
In March 2021, a digital artwork called “Everydays: the First 5000 Days” went up for auction at Christie’s. The final sale price was $69 million. The image (below) is easily reproduced, but the original is secured with a token - an NFT.
The token itself contains unique identification codes, making it uniquely distinct. Storing it on a blockchain means that ownership can be identified and verified, which in turn means it becomes sellable like a physical asset. And what is sellable can be valued.
Discover the Metaverse
The term and the idea of the Metaverse came from an influential 1992 speculative fiction book, Snow Crash, by Neal Stephenson. In the book, the Metaverse is an immersive realm entered with the help of virtual reality goggles, a natural successor to the Internet.
After 30 years, Stephenson’s vision is not far from reality. The exact form the Metaverse will take is still debatable, but the investment into it is unmistakable. In October 2021, the corporation formerly known as Facebook announced its rebrand to Meta, squarely placing its bet on the future.
So the answer to the question, “What is the Metaverse?” is complicated because it hasn’t yet become fully realized. It’s still emergent.
In their article, “What is a Metaverse?”, Gartner offers a good explanation:
Technically, a metaverse is a collective virtual shared space, created by the convergence of virtually enhanced physical and digital reality. For simplicity’s sake, think of a metaverse as the next iteration of the internet, which started as individual bulletin boards and independent online destinations. Eventually these destinations became sites on a virtual shared space — similar to how a metaverse will develop.
A metaverse is not device-independent, nor owned by a single vendor. It is an independent virtual economy, enabled by digital currencies and non-fungible tokens (NFTs).
As a combinatorial innovation, metaverses require multiple technologies and trends to function. Contributing trends include virtual reality (VR), augmented reality (AR), flexible work styles, head-mounted displays (HMDs), an AR cloud, the Internet of Things (IoT), 5G, artificial intelligence (AI) and spatial computing.
Analyze Investment, Maturity, and Application in the Metaverse
So let’s dive into our three-point framework to analyze where the Metaverse sits on its path to the mainstream:
1. Investment - There’s a big increase here. At the halfway point in 2022, McKinsey anticipated investment in the Metaverse to reach $120 billion, pointing toward a marketing opportunity to be measured in the trillions of dollars.
2. Maturity - This is still developing. Or, as Gartner put it, “emerging” in their three-phase analysis of the evolution spectrum, as below:
3. Application - There are some interesting examples of companies experimenting with Metaverse projects, but proof of success remains elusive at the time of writing. But if you want some examples, think about the Pokémon 2 craze from the late 2010s, Fortnite (which has repositioned itself as a Metaverse experience), or Mini’s “Miniverse,” a marketing exercise in 2022 that draws on some of the future possibilities the Metaverse has to offer. But I would argue that these are very early experiments rather than fully realized examples of what the Metaverse might look like.
Your Turn
What might Web3 mean for your business or industry? Take some time to expand the investment, maturity, and application framework to the broader world of Web3 and map out where you would place it, focusing on your area of work.
Is there a business case you could put together for working with all or some of the Web3 features already? If so, what might you do?
If not, what would you need to see in terms of investment, maturity, and application to change your mind?
Let’s Recap!
Web3 is the next emerging paradigm for the Internet - and will address the “original sin” of the earlier iterations.
Web 1.0 was the “read only” web - centrally controlled, with comparatively small numbers of content creators producing webpages for their audiences.
Web 2.0 added a more social dimension characterized by the emergence of social media networks and user-generated content.
Web3 creates a value exchange dimension to add to the medium, thanks to blockchain and the addition of virtual, augmented, and mixed reality. Web3 is currently emerging.
This brings us to the conclusion of Part 2 of our Emerging Technology course. At this point, you can apply different frameworks to assess the value, level of evolution, and potential use cases for any emerging technology you encounter — and you’re up to speed with some of the more essential technologies currently emerging.
Next, you have a quiz to test your learning - good luck! And when you’ve completed that, join me in Part 3, where you will learn how to think about implementing emerging technologies in real life! See you there.
