What makes humans special?
Besides our large brains, humans are not particularly special from a biological perspective. We’re not natural hunters or trackers, not adept at surviving extreme conditions, we even share roughly 70% of our DNA with acorn worms.
What makes humans special in the grander scheme of things is our ability to interact and work together in complex ways. To record, store, and transfer information and value (financial or otherwise) across generations. Ever since we mastered technology, humans have consistently found ways to exponentially optimise and scale the generation, transfer, and spread of information and value across the globe. We owe a lot of this efficiency (and the subsequent value creation) to one groundbreaking technology — the Internet.
The Internet has become such a part of our lives that the average Internet user today understands precious little of how it works under the hood, or what potential improvements are being made to it that may affect how they interact with it in the future. This abstraction is not a bad thing, except that in failing to understand where the Internet came from and how it evolved, many Internet users miss out on the magnificence of its future being created right in front of us — Web3.
The term ‘Web3’ is being used today with the same gratuitous abandon as ‘AI’, ‘ML’, and more recently, ‘blockchain’, which creates a bit of a branding issue. But unlike those discrete technologies, Web3 refers to a new era in which all these technologies will likely play a part, and fundamentally change how we interact with each other and use services online.
From ours to theirs
The unique human ability to band together to accomplish complex tasks hinges on our ability to build and adhere to protocols. If you really think about it, languages are commonly accepted protocols that have supercharged our ability to record and share information. Money is a protocol that helps us coordinate and allocate real world value to our actions.
The Internet itself is built upon protocols. In its early years, the period referred to as Web1, these protocols enabled us to communicate and consume online, but the ability to create new information or interact with it was limited.
Web1 realised a vision for an open, decentralised network, where you could create value and reap the rewards for it. It was the time of the creator.
But that changed when Web2 came along. Web2 changed the nature of the Internet. It went from ‘read only’ to ‘read-write’. Users can now interact with the Internet on a much deeper level. We create content, build products, share things, and interact in new and different ways. We run meme accounts under pseudonyms, build game-changing products in public, and collaborate with people in different geographies purely over the Internet. But unlike ‘builder-focused’ Web1, Web2 has been the domain of the aggregators and centralised platforms. Value now goes not to the people building great things, but to the platforms, these things are built on, along with all associated data and identity information.
Which begs the question — why?
Why has the value creation paradigm shifted from the individual to the conglomerate? When did the Internet which enabled opportunity and value creation for everyone become the bastion of a few companies that could effectively corner creation and capture value?
One simple answer is that the giants of Web2 can solve trust at scale.
In the Wild West of Web1, a limited number of users could interact and coordinate with some semblance of normalcy. When the Internet exploded across geographies and in scale, direct peer-to-peer interactions became laden with friction.
Why should I take the trouble of gauging the trustworthiness of 20 homestay owners when Airbnb can do that work and aggregate them for me?
Why take the trouble of hunting for a reliable cab service when Uber can address that for me?
Web2 has given us freedom and flexibility, and in the process we have lost value and autonomy. Web2 has been the domain of the platforms (Facebook, Uber, Airbnb, Youtube etc) that were able to build large network effects, and then exploit them efficiently. We have gone from using the Web, to being used by the Web.
The alchemy of moneymaking
Large platforms and their subsequent effects are not the only evolution to come from Web2. There is also fintech.
The Internet has changed our relationship with money forever. Payments are done with a swipe and a tap, and every new product has a fintech component baked in. Your favourite apps prod you to add money into their individual wallets, helpfully tell you to take some quick credit and pay them back later, and cross-sell 3 other products while you complete 2-factor authentication at checkout. Web2 has propelled us into the age of embedded finance, and the result is the convenience of chaos. In a world where central banks inflate their way out of rising debt with carefree abandon, the average user, after having signed away their slice of the value creation pie to the platform players, has never had more ways to be in perpetual debt.
Despite these advancements, every person in the Internet economy is still bound by value creation and transfer concepts from years past. Your value to society is still dictated by monthly paychecks and dated investment avenues, all chugging sluggishly through the pipes of middlemen institutions who siphon off a piece of the pie.
They get to do this because there has never been an alternative to solve for security, identity authentication, and value storage. If you want to participate in the economy you have to use money, and are therefore bound to the network in which money operates.
For all the added convenience, modern fintech systems are still hamstrung by the archaic ideas that underpin them. They’re horse-drawn carriages disguised as sports cars.
The perfect storm
Every new era needs a catalyst and Web3, perhaps fittingly, had 3.
An Internet where value creation has been taken over by whoever has the biggest network, a generation coming to terms with the reality of being wronged by an increasingly encumbered financial system, and an unforeseen pandemic.
This perfect storm of events came together in March 2020, and suddenly the world changed. Trillions of additional human hours were created, the cracks in the financial world became gapingly evident, and disillusioned market participants took their money to the only avenue that had the potential to level a skewed playing field — crypto.
‘Crypto’ is perhaps a sweeping generalisation here. The more accurate terminology might be decentralised, blockchain-powered alternatives to existing solutions.
Or to brand it more in line with the terms we’re using anyway — Web3.
But what the heck is Web3?
Common consensus states that Web3 is a term used to define open-source, decentralised, blockchain-based platforms that allow users to retain ownership of their data (and have a stake in the platform itself). Users usually interact with these platforms in a ‘trustless’ manner, authenticating their identity through crypto wallets that hold tokens for the networks they transact on.
web2: read / write
web3: read / write / own
A tale of two siblings
Shortly after the COVID19 pandemic confined us to our homes and unlocked additional time for humanity to create new things, cryptocurrencies — led by Bitcoin and Ether — witnessed the largest bull run in their history. Many explained this away as stimulus checks being pumped into speculative asset classes, but it can also be seen as a transfer of value. The unlocking of human capital was expressed not only in the financial markets, but perhaps more exponentially, in the crypto markets.
The very concept of money dictates that beside it being a transferable entity that serves as a unit of account, it must also be a store of value. When someone creates value in society, they are rewarded by society with money in return for the value that was created. This concept of value, traditionally enforced by money being a scarce commodity, like gold or — further back in history — cowrie shells, has been abandoned by governments and central banks with the introduction of fiat money. The ability to print their way out of trouble and inflate debt away has only served governments and institutions, with the average citizen left helpless and left to take on more risk as their wealth — the measure of the value they created — evaporated and their returns dwindled.
The meteoric rise in crypto in the year of the pandemic was only part speculation, it was also a correction in value terms, fixing the imbalance created for years prior. While cryptocurrencies come in many forms to serve many purposes, for all intents and purposes Bitcoin and Ether represent the fundamental ideals of cryptocurrency and Web3. By happenstance or design,
Bitcoin today is what gold-backed money should always have been, inflation resistant and a reliable store of value, updated for a digital age. Ether and its Ethereum blockchain, plus its side chains and roll-ups (similar to the World Wide Web protocol being built atop the TCP/IP protocol), represent the potential for future value creation.
This is represented in the explosion in Decentralised Finance (DeFi) projects in the past year. While conventional fintech grapples with the pitfalls of being shackled to centuries old ideas of value creation and transfer, Web3 allows for a reimagining of what is possible with money.
Without getting into the nuances of cryptography and consensus, Web3 immediately solves 2 problems that we currently have with Web2 platforms — trust and ownership.
Many of the problems we face today when it comes to money — illiquidity, lack of access to credit, fraud, transaction costs — can be addressed with Web3. If everyone’s wealth was stored in secure crypto wallets, staked out to liquidity pools for stable interest, the possibilities begin to emerge. Liquidity and credit doesn’t need to be stored in the dams of institutional gatekeepers, but managed by pre-written smart contracts with access to credit worthiness credentials stored on chain. The paradigm shifts from scarcity, towards abundance, and eventually… upliftment.
How DAO you like that?
Imagine a world where AirBnb is a Decentralised Autonomous Organization (DAO) — an entity that operates with minimal human intervention based on code. Its developers use Solidity, the programming language of the Ethereum blockchain, to write smart contracts that verify and update listing information and display it automatically. A host lists a property, a smart contract is fulfilled and a revenue share contract is spun up. Property details are updated via other contracts, so is availability. All this is recorded on a public blockchain that is immutable and available for anyone to view. The property owners can be issued tokens for listing and as fees, giving them a stake in the platform for the value they create.
As for the user, they don’t have to sign up, create an account, and share information. They just connect their crypto wallet to the site and enjoy the same experience without ever having to share extra information.
Setting up a DAO is also a great way to build and maintain consensus and steer the actions of a group formed for a specific purpose. The recent attempt by ConstitutionDAO, which was formed to coordinate an effort to purchase a copy of the US Constitution, is an example of a real-world use case for DAOs today.
A group of people get together, decide to pool resources to bid for the item at auction, and raise the money through a DAO, issuing governance tokens to all contributors in proportion to the amount of crypto they contributed for the cause. These governance tokens allow the participants to vote on the actions to be taken by the collective in proportion to the stake they own, and at no point does a dispute need to arise because all the contribution information is forever recorded on chain. The members of ConstitutionDAO were not even in the same geographic area.
DAO (Decentralized Autonomous Organization) as an organization represented by rules encoded as a transparent computer program, controlled by the organization members, and not influenced by a central government.
In truth, such networks exist all around us even today. In reality, everything from money to religion can be considered a network, and both enjoy the consequential network effects. However, both also require considerable resources, infrastructure, and cost merely to function.
On the other hand, a DAO can be spun up in minutes, scaled to any level required, and allows absolute strangers across the world to collaborate without having to trust each other, or involve multiple third parties to coordinate the efforts of the group. This is one of the most exciting promises of Web3.
The Chaos Tunnel
The possibilities are endless, and as we imagine them at the dawn of this new era, some of these possibilities will require some level of suspension of disbelief. What seemed like a pipe dream in the Airbnb thought experiment became a plausible outcome after the efforts of ConstitutionDAO. Non Fungible Tokens (NFTs), digital assets with verifiable ownership mapped to a blockchain, are currently being used in the burgeoning digital art market and as signals of status in the form of collectible profile pictures on Web2 social networking platforms. We’re at an inflection point, a period of chaos where our discrete worlds begin to meld together. It won’t make sense, and then it will — all at once.
As a larger percentage of human life moves from the physical to the digital world, the connections between these worlds will deepen. Today a Web2 social platform like Twitter starts authenticating NFT profile pictures, melding Web2 and 3. Tomorrow, virtual weddings — a pandemic activity that seems here to stay — will come with NFT drops along with wedding invites. Imagine if Billie Eilish dropped an exclusive track as an NFT. When you sell it years later, you get an upside, and so does she.
Instead of ConstitutionDAO collaborating to buy an item, imagine if people with similar interests across geographies used a DAO to build a ‘cloud nation’ and issued NFTs as its passports?
What if every passport holder of this nation formed another DAO and pooled resources to buy digital land in Decentraland to form a nation divided by geography, but united in the metaverse?
The metaverse itself is taking shape around us, and it is not about Google’s AR glasses or Facebook’s rebranding, it’s about the mental shift in embracing a life that bleeds into the digital sphere. This is not a new concept. Gamers around the world have been playing the MMORPG DoTA for nearly a decade, and the game’s annual tournament’s prize pool of $40 million dollars is largely funded by the money players fork out for in-game items such as skins. Similarly, NFT marketplace OpenSea is seeing trading volumes in excess of $3B in a month. In a time when you spend as much time socialising online as in the real world, it makes sense that status signals also begin to crop up and have increasing monetary value. You flaunt a Rolex or drive a Lamborghini, and flex your Bored Ape in the ‘metaverse’.
Web3 is soon becoming the frontier of human innovation, and on the frontier, some suspension of disbelief is necessary. The universe is always in a state of entropy, going from order to chaos, and then to creation. The future requires us to embrace the chaos tunnel.
People forget just how completely non-obvious the entire digital revolution was every step of the way.
1995: WWW will fail
2002: Google will fail
2007: iPhone will fail
2013: Facebook will fail
The light of a new dawn
If anything, the chaos tunnel seems like a time of trials and tribulations, and it likely will be. The challenges are many — ranging from technological to regulatory. That said, the rewards for those building for Web3 today are also likely to be outsized. And unlike the previous generation, the builders won’t be the only ones who benefit. All of society that eventually participates in the future being built today will one day get a share of the pie.
The numbers are already proof of this, browser wallets like MetaMask, Phantom & SKY Wallet are seeing active users rise exponentially, now numbering in the millions.
Blockchain-based play-to-earn game Axie Infinity, also racking up active users in the millions, has seen players even in countries like the Philippines quit their day jobs and make a living playing the game. This is not a localised event, it’s a slowly growing global phenomenon.
And if you thought crypto in general is some obscure offshoot being worked on in dimly lit garages with no institutional backing, here’s a chart that might cause a rethink.
The thing to remember here is, while it’s easy to assume that the crypto gold rush has run its course by 2022, the Web3 story is just getting started. With monetary incentives baked into the very fabric of crypto, we can now figure out efficient and secure incentive structures in untapped avenues, unbundle archaic institutions with cryptoeconomics and smart contracts, and mobilise the collective drive and intellect of humanity in a frictionless way by leveraging the power of DAOs.
Web3 does not matter because it is ‘the next big thing’. It is not about the Bitcoin bull runs and the sudden inflow of VC money into crypto projects. It is about the next exponential leap forward for humanity.
THIS IS NOT A MONEY STORY. THIS IS A COMPUTE STORY.
Humanity is not a special species. We’re just the only one that never settles for the status quo, the only one that keeps building atop generations of improvements in order to make life better.