One of the most significant recent developments in the crypto and DeFi space is the emergence of Web3 – a decentralised virtual ecosystem that operates on blockchains. How is this next iteration of the internet progressing? And what parts of the economy and commerce could this new technology revolutionise? Tascha Che, a macroeconomist and Web3 angel investor, appeared at the Singapore Fintech Festival to outline the eight most important Web3 trends.
The most obvious use-case that springs to mind when people think of blockchain and Web3 technology is payments. Many argue that blockchains make payments cheaper and faster. Che noted that “traditional cross border payments cost a lot, while sending tokens over the blockchain costs next to nothing, and it costs the same whether you’re sending $1 or $1 million.” However, she also argued that “this comparison is not exactly fair.” That’s because traditional payments are made more expensive by legal and compliance costs that the Web3 space is not (yet) subject to. She said that some centralised payment services, such as credit card networks, are actually still cheaper and faster than decentralised blockchains. Therefore, the “real value of Web3 may lie somewhere else.”
Indeed, Che believes that one area where Web3 can add significant value is in financial inclusion – extending financial assets to relatively unbanked global markets. She said that “if you look at digital asset adoption around the globe, there’s something strange going on.” The adoption of digital assets is not correlated with GDP per capita. In other words, rich countries are no more likely to adopt these technologies than poorer countries. “Web3 is a global movement reaching traditionally underserved markets.”
Digital property rights
Che also argued that Web3 is about something more fundamental than solely finance and money. She said that “if I were to summarise what drives Web3 growth with one word, it’s ownership.” Che envisages Web3 as empowering individuals: about leveraging technology to organise the economy in such a way that allows more people more ways to benefit financially from their own data and contributions to the digital economy. “More ways to own a slice of the economic pie.” Che said we should “think of Web3 as a co-op ownership model that’s made scalable by technology.”
“Composability and interoperability is another core innovation of Web3,” Che argued. In the current iteration of the Internet, applications are siloed, meaning it’s not possible to build on top of them in order to progress. “In Web3, applications can build on top of each other “permissionlessly” and users can take their data anywhere they go,” Che said. “The result is that you can have a digital economy that can innovate faster, and is more flexible and resilient.” She provided some data which demonstrates how this “resilience” is already playing out. After the crypto crash earlier this year, which saw about 35% of the space’s combined market cap wiped out, blockchain activities dropped a lot less. Use across top smart contracts and blockchains is only down about 5% compared to a year ago. Transaction volume dropped after the crash but have since recovered by almost half since Q2. “So Web3 activities are actually quite resilient to the negative financial shocks that we’ve seen so far.”
When addressing the subject of NFTs, Che accepted that many believe they’re just hype – “people still think that NFTS are just jpeg pictures of monkeys.” But the real value of NFTs is that they “provide a neutral, interoperable ownership layer for all intangible goods.” This means that NFTs allow consumers to assert digital ownership over a certain asset, an asset which they can then use to interact with the global Web3 network. Because they’re “neutral and interoperable,” this can all be done “while being completely independent of any corporate platform.” Like wider crypto markets, NFTs also crashed earlier in the year, which led many to conclude that they are indeed just a fad. But Che noted that active users across the two largest NFT platforms have remained stable since last year, while transaction numbers have increased over 200%. “Data so far is not exactly supporting the hypothesis that NFTs are just some transient anomaly,” she said.
The question of NFTs raises a wider issue – that of utility. So far, despite the advantages Che outlined, NFTs have only really found a role as digital art. But Che believes we’re now moving into a stage where Web3 is transitioning from hype and ideas to practical use-cases. “There’s not much data on this observation yet because we’re really talking about technology at its very inception,” she said, “but the emerging trend is that existing businesses in Web2 are starting to leverage Web3 to create new business models and growth opportunities.” She argued that we may be in the stage of Web2.5, a transition or crossover stage in which traditional businesses start to look into the possibilities of Web3. In turn, this should lead to new innovation and new business models emerging. Through tokenisation, “you can give expression to hidden values in an economy,” thereby creating entirely new industries, professions, and even GDP layers. This is the potential of Web3 if real-life use-cases can be developed successfully.
Energy consumption has long been an obstacle to widespread Web3 adoption. Bitcoin, Ethereum, and many other cryptos that are based on a “proof of work” model, have been criticised for the vast amount of money used in crypto mining. However, this is set to change. Ethereum, the largest smart contract chain in the world, transitioned to a “proof of stake” model in September. Che argued that “this is a big deal” because “going forward, environmental impact will no longer be a concern.” After all, energy consumption on the Ethereum network has dropped by 99.99%.
Che concluded by quoting Marc Andreessen, who thinks that the entire global economy could be running on the blockchain in 30-50 years. She believes this very ambitious projection is “actually not that crazy.” The trajectory Web3 adoption is currently on is similar to that of the Internet at its early stages. “If you had asked people in 2001, after the .com bubble, whether it’s a sure thing that the Internet would take over the world, most people would’ve said no,” she said. “So whatever you imagine what Web3 will look like in 20-30 years, ask yourself if you’re thinking too small.”
Of course, Web3 faces many challenges. Regulation is one major uncertainty that may be slowing innovation down. And nobody knows if and how Web3 will continue to evolve. But, in Che’s words, one thing is for sure. “It will bring changes to our economies and those changes will be fast and furious.”
Author: Harry Clynch