Web3 is an idea that is generating a lot of excitement at the moment in business technology communities.
Put simply, the idea is that we’re heading towards the third iteration of the internet – following on from the world-wide-web (which bought us web pages) and social media (which bought us user-generated content).
Although there is a lot of ongoing debate on the subject of exactly what web3 will be, a short summary is that it will be decentralized, trustless, and permissionless, autonomously managed via artificial intelligence (AI), and built on blockchain technology. If that all sounds like gobbledygook, I explain these concepts in a bit more detail here!
So, there’s certainly plenty of hype around the idea, but what isn’t entirely clear just yet is how much value it’s actually creating. In fact, some have expressed fears that we may be heading towards a similar situation as we were with internet 1.0 during the last years of the 20th century. This would put us on a collision course with another “bubble-bursting” crash – just like the dot-com crash of 2000.
This is an idea that’s been put forward by some prominent thinkers in the field of technology. One person that I have spoken to about it is none other than Tim O’Reilly – the founder of O’Reilly Media and someone that helped to coin the term “web 2.0” (as well as the term “open source”)
Let's take a look at this in a little more depth. Firstly, if it's true, then would it really be a terrible thing? After all, the dot-com crash led to the emergence of the internet as we know it today. Yes, a lot of investors and venture capitalists lost money, but did it really have that much impact on the day-to-day life of the average person? It’s certainly debatable.
But things are a little different this time around. After the dot-com crash, several businesses which had already established themselves as having the viable business models that would form the foundations of the internet, going into the 21st century, were able to truly prosper and grow. I’m talking about the likes of Google and Amazon. Maybe even SixDegrees – often cited as the first social network - which may not be around now but undoubtedly laid much of the groundwork that was later picked up by MySpace and then Facebook.
The problem here is that there doesn’t yet seem to be an equivalent of these ground-breaking innovators in the web3 domain. By that, I mean companies that are creating real value with new business models and use cases that simply wouldn’t be possible without this latest iteration of the online experience.
So if it does all come tumbling down, there may well be nothing left to rise, like a phoenix, from the ashes and usher in the brave new decentralized world we are told is waiting for us.
This is a view put forward by O’Reilly (and others), and one of the reasons he believes we may all be a little premature in our excitement and enthusiasm for all things web3.
Joining me for a conversation recently, he told me, "The way I think about it is there's a little bit of a timing mismatch between the frenzy and the reality … the internet first came out in the late 60s, but it wasn't until the world wide web came along … in 91 or 92 … that we actually had the ‘killer app’ for the internet. Email was great, but it wasn’t the game-changer.”
If you've been following the hype and excitement that has built up around the concept of a decentralized, autonomous web3, it's possible you might suggest that NFTs – non-fungible tokens – as the "killer app." After all, they are sold to us based on their potential to let digital assets have qualities like scarcity and uniqueness. This certainly sounds like it could be a game-changer in a world where the metaverse – digital realities where we live our lives in immersive environments – are apparently just around the corner. In such a world, in order for anything – from a house to a pair of shoes – to have value, wouldn’t it need to be unique, so it couldn’t just be copied and pasted to create an infinite amount of duplicates?
Well, it’s a possibility, but O’Reilly isn’t necessarily convinced: “I’m a little bit more interested in DAOs (decentralized autonomous organizations) – because I do think there’s something really potentially interesting there.
A DAO is a concept that's been described as an "internet community with a shared bank." They act similarly to companies or statutory organizations in the sense that members are bound to follow a set of rules and regulations. The difference is that the rules are governed by blockchain-based smart contracts that can automatically execute functions – such as making payments – when terms are fulfilled.
“But it’s still so early … here we are at the very beginning … if you think back to the first search engine, Web Crawler was 1994 – and you started to have this thing called CGI where you could have a dynamic website rather than a static site at around the same time, we’re kind of at that stage – so we have the late-stage bubble five years too early. There are huge fortunes being made, long before the technology is really developed or the winning players have emerged.
“If we match up the timelines … the ‘crypto Google’ is still not here. It may not be here for another five years, and yet … companies are being valued as if they’re already in this dominant, working future.”
What’s missing is the way to generate real value – which often means money. With the first iteration of the internet, it can be said that this didn’t happen until the invention of pay-per-click (PPC) advertising, as pioneered by Google during the early 00s. Before that, businesses jumped onto various bandwagons, starting with the concept of commercial websites and later moving onto banner advertising. While both filled their purpose of allowing commercial organizations to establish a presence on the nascent world-wide-web and begin developing a digital footprint, it didn't bring about mainstream acceptance of the internet as a channel for business and marketing and delivering new customer experiences.
O'Reilly tells me, "There are so many areas where somebody's going to invent a totally new way to do something, in the same way, that PPC advertising was utterly transformative of the advertising business – and that’s where things like DAOs are interesting … it's got some different elements that make it more powerful, so people can come together and they can finance a project collectively … but they haven't actually figured out all the ways that it works, the governance, how do you actually buy real-world assets and control them … but guess what – that was how the web worked in the early days!”
It's certainly very early days for everything involved with the web3 concept right now. While everyone may seem to be focused on what seems to be the quick and easy route to making piles of money offered by NFTs or cryptocurrency, we have no way of knowing what real innovation might be just around the corner. If web3 and all the concepts it encompasses – from DAOs to cryptocurrency – really can solve problems, like the enormous infrastructure requirements of running existing organizational and financial systems, and the reliance on trust to pin it all together, then it could kickstart the revolution we’ve been told is coming. But there’s a lot more that needs to be worked out before we get to that point, and possibly a bumpy ride for some of the companies and individuals that are already pouring money into it!