A change is coming to the internet as we know it today. In fact, the shift may already be underway with the advent of cryptoassets. In Web 1.0 consumers accessed the web through dial-up modems and read information on static websites. Users, both consumer and enterprise alike, had to settle for read-only websites and subpar shopping cart experiences. While laughable today, it was the dawn of the information age. We have seen what information access can do to societies. The Gutenberg printing press produced books en masse and disseminated information at the speed physical distribution. With Web 1.0, information exchanged between two parties at the speed of 56 kbit/s, the bandwidth enabled by consumer grade modems at the time. An average 2 gigabyte film would take a little over 85 days to download back then. We've come a long way since. The internet today, broadly referred to as Web 2.0, allows users to interact with web services such as Facebook or Google from a range of devices including mobile phones, laptops, tablets, and home IoT devices. But even at the beginning of Web 2.0, user interfaces did not have the spit and polish of today's services nor could you access your social media profile from a handheld device.
The first blogging services such as Live Journal and Blogger brought the net from a "read-only" era to a "read-write-publish" era. Newer concepts such as collaboration, machine learning, and mobility would shift Web 2.0 to Web 2.5. Here, companies were able to work within the same document simultaneously and file storage was shifted to third party drives such as Google Drive or iCloud. Mobility turned every day bloggers from desktop keyboard mashers into poolside WordPress impresarios. Machine learning, IoT, and cryptoassets present a number of directions the next internet will move into. AI/machine learning present opportunities for accelerated trend recognition and improved service delivery. IoT devices compliment the screen driven interactions we have become accustomed to. Ordering house supplies is as easy as shouting your order out to Alexa from the comfort of your living room.
Web 3.0 is not just technological evolution but also a significant transformation for businesses and consumers alike. In the era of Web 3.0 real world assets may be tokenized enabling fractional and cross-border ownership. Investors will be able to participate in the infrastructure that powers the next wave of applications. In the next few sections below I explore a few macro implications cryptoassets brings to Web 3.0.
Digital Asset Sovereignty
Cryptoassets are an emerging category of digital assets. The definition of an asset is property owned by a person or a company. Consider your Facebook profile for a minute, if you haven’t already deleted it. If you are a regular Facebook user you spend the time to post about your everyday life or scroll through its News Feed feature to quickly grab the headlines of what is going on in your social circle. Yet the Facebook profile is not truly yours. The terms and conditions set by Facebook Incorporated dictate whether you are within the bounds of the rules they have set. Violate those terms and you may quickly find a deactivated or suspended account. Cryptoassets differ greatly in that ownership is dictated by cryptography.
Bitcoin, for example, was the first real world example of a decentralized digital asset with a high degree of censorship resistance. The Bitcoin network is operated, maintained, and secured by the thousands of nodes that comprise the entire network. Attacking the network successfully would require a high degree of well coordinated takedowns or manipulation of said nodes. Combined with financial incentives to run honestly, nodes run as intended. The end result is a network transacting and creating digital assets. Bitcoin owners are secure in their ownership. There are no terms and conditions to abide by in Bitcoin’s permissionless network. As long as Bitcoin owners have their private key they can access their funds. This type of censorship resistance leads to digital asset sovereignty.
Lowering switching costs and intertwined competitionIf you played World of Warcraft when you were younger you no doubt built up some impressive fortresses and banked some serious coin along the way. All that time and energy spent amassing an in-game fortune evaporated as soon as you stopped playing. Moving to a new game meant you had to start all over again. There is a price, or a cost, to pay for switching over. These are switching costs. Digital currencies such as Bitcoin open up the possibility of game players moving assets from Game A over to Game B. If both games were developed by different game publishers it opens up an entire new world of business possibilities. Activision could entice Call of Duty players to also pick up another title in their library such as Destiny without setting their players back in time. Players could simply buy, sell, or transfer ActivisionCoin from Call of Duty over to Destiny. Even stranger, players owning ActivisionCoin could then trade on external exchanges to participate in a competitor economy such as Electronics Arts games. Not only is Activision competing against EA for game sales, but now they may be competing at the level of in-game economies, or better said inter-game economies.
Paradox of Choice
Columbia University professor Sheena Iyengar conducted a research study on choice. In this study, the professor and her research assistants set up a stand filled with jams. Every few hours they would have either six or 24 james on display. The larger display of jams drew in sixty percent of people passing by while the smaller display brought in forty percent. Of the people stopping by the smaller display of six jams, 30% actually purchased a jam. The larger display resulted in 3% purchasing. This dramatic difference in purchasing behavior suggests that more may be less.
In the future, a tokenized economy may present the paradox of choice. If every digital service had a token and its own mini-economy, it may potentially raise more problems than solutions. Cryptocurrency exchanges today have dozens of coins to trade. Even more confusing are the potentially hundreds of exchanges each with their own jurisdiction trading restrictions, fee structures, and liquidity variances. Web 3.0 may open up new forms of value and ownership but it may also slow down the ease of conducting business.
Stubborn Networks and PrivacyDecentralized networks may suffer higher latency but also exhibit operational resilience. Would-be attackers would need to overtake significant portions of the network for a successful takedown. Data breaches such as the hack of Equifax may be more difficult to pull off in networks where personal financial data is sovereign to the user. Research is still ongoing and several projects are working on increasing privacy measures. Companies are sure to learn lessons from these new technologies and stand to benefit from protecting their precious intellectual property. Consumers will also benefit as they will not only have the option to use centralized services such as Facebook but also the ability to opt-out of privacy invading products. By owning their own data and storing it on a decentralized network, consumers can opt-in to the services they want while worrying less about system wide theft or disruption.
Web 3.0 is hereDevelopers building applications have more choices to consider than ever. The applications of today and tomorrow will need to be delivered on multiple form factors from mobile phones to screenless IoT devices. We will unfortunately still be advertised to through use of cookie trackers but we will also be intelligently marketed to because we chose to share our information on protected decentralized services. Our digital estate will be ours to keep and not subject to forfeiture, confiscation, and suspension. I’m keen to see where, how, and what changes the Web3 stack will bring to this world.