Jeff Wong is the Global Chief Innovation Officer of Ernst & Young.
The tech world is ablaze with Web3 debate. Is it the people’s internet, free of tech-giant control? Or is it an idealistic illusion that ignores the reality of what users want and how the tech behind it works?
Either way, money is pouring in. According to Crunchbase News, 2021 saw a huge jump in investment in blockchain-related startups, from $2.1 billion in 2020 to around $17.9 billion. Early signs suggest another bumper year in 2022—deals so far include $200 million in funding for Web3 developer Alchemy and $450 million for blockchain business Polygon.
Business leaders are taking notice. CEOs and C-suite leaders I work with frequently ask five key questions about Web3—let’s dive into each.
1. WHAT IS WEB3?
To explain Web3 as we understand it today, we need to go back to Web 1.0 and Web 2.0. The differences lie in how we interact with the internet. In Web 1.0, we consume content on static websites. In Web 2.0, we interact with social platforms as active contributors and content creators. In the current shift from Web 2.0 to Web3, our interaction with the internet is becoming increasingly connected. The boundaries between the physical and digital worlds are blurring, and we are benefiting from smarter predictions of our behavior as our devices talk to each other. The Web3 features primarily enabling these changes are decentralization and increased ownership.
To bring this concept to life, imagine a group of talented experts come together to release a product to market. Today, they might form a company, taking set roles with varying degrees of influence on running the company. With Web3, whatever your role, you have a say in the group’s purpose, how funds are allocated, and what policy looks like—including users. It’s a level of engagement that is practically unheard of, and it’s an idea that is really taking hold.
Web3 is a decentralized internet aiming to replace the corporate platforms that control today’s internet and data with a user-governed system. Three primary elements combine to achieve this goal:
The metaverse has been written about as “the next internet,” so the confusion between it and Web3 is understandable. In reality, they need each other to exist. We can think of the metaverse’s virtual and Internet-of-Things world as the front end of the next internet. Web3 is the back end, with its decentralized, blockchain-based ecosystem as well as cryptocurrency- and NFT-enabled financial system facilitating the metaverse experience and transactions.
3. WHAT TECHNOLOGIES DOES WEB3 RELY ON?
Blockchain technologies are at the heart of Web3, providing the distributed ledger architecture that underpins the Web3 infrastructure, platforms, and applications (known as dapps—decentralized applications). This useful Coinbase article explains the infrastructure layer as targeted “interoperable building blocks” that developers piece together to build platforms and dapps. Infrastructure blocks range widely, from smart-contract auditing software to data storage and identity solutions.
As Coinbase also explains, Web3 platforms and dapps fall into four categories: gaming, content/social, NFT, and financial services. These categories will likely expand with the Web3 movement. Cryptocurrencies such as Bitcoin and ETH (from blockchain platform Ethereum) also play two important roles: first, as a form of payment to play a game like buying an NFT on a marketplace like OpenSea; and second, as a financial incentive (via tokens) to encourage your active participation in a Web3 project.
4. WHAT ARE THE OPPORTUNITIES AND CHALLENGES OF WEB3?
At this stage, the opportunities for Web3 are subject to debate. The cryptocurrency market is unregulated, which can lead to risks that leaders may be cautious about taking while the technology and framework are still new. There’s also concern around blockchain’s interconnectivity and how to protect personal data, something that has yet to be properly addressed. Lastly, there are significant technical and sustainability challenges to contend with around blockchain scalability and energy usage.
And yet, Web3 could also lead to positive innovations. DAOs, for example, could herald a new era of innovative internet businesses that aren’t stifled by tech giants. They also tap into the general trend toward community-led engagement and action. We see this in the growth of crowdfunding, how global social movements are activated, and when large businesses decentralize control of their message by giving employees a voice. DAOs’ potential as a more efficient way to create shared ownership of a business or project could be very exciting.
Similarly, could Web3’s promise to put data ownership in the hands of users foster innovations along the lines of open banking? Could smart contracts (when agreed terms are encoded in a blockchain to run automatically when conditions are met) reconfigure multi-party processes like supply chains?
5. IS WEB3 A SPACE WORTH WATCHING?
Web3 is part of the continuing tech and human evolution. We are at an exciting stage of exploring its potential as a new way for humans to interact, testing it in different arenas to build out its strengths and iron out issues. We are all players in this “work in progress” new reality; as in every game, there will be big players with more influence, but all players need to decide how to play.
My recommendation to leaders is to read up and start experimenting. Try building a dapp, exploring startups that are working in Web3, or setting up a crypto wallet. Ask your tech team for their thoughts. As I often say, it’s never too early to think about an emerging technology.