Web3: What Does the New Web Frontier Mean for Business?
January 2, 2023 for SAGE Publications: SAGE Business Cases Originals
Below is my contribution to a case study designed for graduate and post-graduate students to get a sense of how business can be effected by diverse, multidisciplinary issues. Editors later added teaching notes for professors, learning outcomes for school cirricula and abstracts for student clarity.
The Issue
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Web3 is being touted as the future of technology as we know it, but few know what it actually is. First, we go back to 1989, when Tim Berners-Lee developed the protocols that would soon become known as the World Wide Web. His idea was to create open, decentralized protocols to allow for information-sharing from anywhere on Earth.
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The first inception of this was known as Web1.0, active from 1990-2004. Web1.0 was largely read-only, showing static web pages from companies and allowing for little to no interaction between users. During this time, building and running a website was extremely expensive, making it more exclusive to companies who could afford to set up and run large websites.
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The current iteration of the Web, called Web2.0, is more of a read-write platform, allowing for websites to become cheaper and more available to those without coding experience. Web2.0 began in 2004 with the emergence of social media platforms. New technologies were on the rise allowing smaller companies and individuals to harness the power of cloud architecture and cheaper hardware (i.e. laptops, tablets, etc.). This facilitated more user-to-user interactions and birthed an advertising-driven revenue model. Although it has allowed users to create content, they still don’t necessarily own that content or benefit from its monetization.
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As its name may indicate, Web3 is the third iteration of the Web, allowing for a read-write-own technological structure. Built upon blockchain technology (the ability to hold, store and trade valuable assets without a central authority), Web3 allows the user to essentially own all their own data. The premise was originally put forth by Ethereum co-founder Gavin Wood shortly after the company launched in 2014. As Wood said, the Web in its current state required too much trust, relying on a handful of private companies to act in the public’s best interest.
It’s difficult to pin down a single definition for Web3, but it relies on the core principles of decentralization, equal access for everyone, use of native cryptocurrency payments (instead of relying on outdated infrastructure of banks and payment processors), and a lack of third-parties. Although the term Web3 has become a catch-all for the vision of a new and better internet, at its core, Web3 uses blockchains, cryptocurrencies and NFTs to give power back to users in the form of ownership.
Why Is It News?
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Centralization of tech has helped onboard billions of people to the Web. Unfortunately, this same centralization has also allowed the “Big 5” (Meta, Alphabet, Apple, Microsoft and Amazon) to have nearly unilateral decision-making powers on how the Web operates. These Big 5 companies have often failed to wield it responsibly, particularly in a targeted-ad economy, where consumers have to cede control of their personal data.
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Web3 allows for ownership of a user’s digital assets in an unprecedented way. For instance, if a user plays a game in Web2.0 and makes a purchase in the game, the item they bought is tied directly to their account. Because of that, if the game creators delete the account, the user loses the value of those in-game assets. In Web3, however, not even the game’s creators can take away that ownership, so users can sell or trade-in any in-game items on the open market and recoup its value.
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In Web2.0, a user is forced to create an account for every platform used (i.e. Facebook, Twitter, Reddit, online games, etc.). If the user decides to change their display name or profile picture they have to do it individually across each platform. Some platforms allow social sign-ins, but this creates a censorship problem, meaning that platforms can then lock a user out of their entire online life. With Web3, a user can control their digital identity with an Ethereum address and ENS profile, allowing for a single secure login across all platforms that is censorship-resistant and anonymous.
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The value of digital assets on Web2.0 are also tied to the notion of reputation on any single platform. This was seen acutely in August 2021 when OnlyFans announced they would no longer allow sexually explicit content. This sparked huge backlash from content creators who felt they were being robbed of an income on a platform they helped create. OnlyFans soon reversed its decision, but the damage was already done. Creators lost thousands of followers and faced the realization that the loss of a reputation on a certain platform can mean the loss of income. On Web3, however, that data lives on the blockchain, meaning when someone leaves a platform, they can take everything with them and plug it into a new platform.
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Because of this, Web3 is likely to shift the power dynamic between platforms and content creators, having very real impacts on censorship and ownership. It also allows for users to potentially own the platform itself using tokens that act like shares in a company. This use of decentralized autonomous organizations (DAOs) allows users to make decisions about the future of the platform and how they define their communities.
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Although Web3 allows for important features that will be available for anyone, it is less likely to be utilized in lower income nations due to high transaction fees. For their part, Ethereum is working on network upgrades and layer 2 scaling solutions to allow for higher levels of adoption.
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The technical barrier to entry is also extremely high at this stage. Users will have to navigate comprehensive security concerns, complex technical documentation and unintuitive user interfaces. Educational drives have occurred with each iteration of the web, and as Web3 introduces new technological paradigms, educational initiatives will be vital to its success.
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Advocates argue that Web3 will create new economies, classes of products, online services and could define the next era of the internet. Proponents of Web3 also predict that the technology will improve the gig economy, allowing workers to have more say in who they work for, what they work on and how they get paid.
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Businesses looking to take advantage of Web3 include retailers selling digital products to people within the metaverse, financial institutions looking into cryptocurrency, and even nonprofits using blockchain to track and exchange units of blood for healthcare. Projects on Web3, however, come with high environmental impacts, financial speculation, potential for fraud and other possible barriers for businesses.